As filed with the Securities and Exchange Commission on May 7, 2007.
Securities Act Registration No. 333-_________
Investment Company Registration No. 811-02328
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. ___ |_|
Post-Effective Amendment No. ___ |_|
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 |X|
AMENDMENT NO. 13 |X|
Boulder Growth & Income Fund, Inc.
(Exact Name of Registrant as Specified In Charter)
2344 Spruce Street, Suite A
Boulder, Colorado 80302
(Address of Principal Executive Offices)
(303) 444-5483
(Registrant's Telephone Number, including Area Code)
Stephen C. Miller, Esq.
Joel L. Terwilliger, Esq.
Boulder Investment Advisers, LLC
2344 Spruce Street, Suite A
Boulder, Colorado 80302
(Name and Address of Agent for Service)
Copies to:
Arthur L. Zwickel, Esq.
Paul, Hastings, Janofsky & Walker, LLP
515 South Flower Street, 25th Floor
Los Angeles, CA 90071
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after the
effective date of this Registration Statement.
If any securities being registered on this form will be offered on a delayed or
continuous basis in reliance on Rule 415 under the Securities Act of 1933, other
than securities offered in connection with a dividend reinvestment plan, check
the following box. [x]
It is proposed that the filing will become effective when declared effective
pursuant to Section 8(c). [x]
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
====================================================================================================================================
Proposed Proposed
Title of Securities Maximum Offering Maximum Aggregate Amount of
Being Registered Amount Being Registered Price per Unit Offering Price Registration Fee
------------------------------------------------------------------------------------------------------------------------------------
Shares of Common Stock,
par value $.01 per share ("Shares") 22,766,670 Shares ______ $1,000,000(1) $107
------------------------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended.
The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment that specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until this Registration Statement shall
become effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
BOULDER GROWTH & INCOME FUND, INC.
Form N2
CROSS REFERENCE SHEET
Items In
Part A Caption Location in Prospectus
------------------------------------------------------------------------------------------------------------------------------------
Item 1. Outside Front Cover.................................................. Front Cover Page
Item 2. Inside Front and Outside Back Cover Page............................. Front Cover Page
Item 3. Fee Table and Synopsis............................................... Prospectus Summary; Fee Table
Item 4. Financial Highlights................................................. Financial Highlights
Item 5. Plan of Distribution................................................. Not Applicable
Item 6. Selling Stockholders................................................. Not Applicable
Item 7. Use of Proceeds...................................................... Use of Proceeds; Investment Objective and
Policies
Item 8. General Description of the Registrant................................ Cover Page; Prospectus Summary; The Fund;
Investment Objective and Policies; Risk
Factors; Capitalization of the Fund and Other
Matters
Item 9. Management........................................................... Prospectus Summary; Management of the Fund;
Portfolio Contents; Custodian and Transfer
Agent
Item 10. Capital Stock , Long-Term Debt, and Other Securities................. The Offering; Capital Stock and Other
Securities; Dividends and Distributions;
Dividends and Distributions; Federal Income
Tax Matters
Item 11. Defaults and Arrears on Senior Securities........................... Not Applicable
Item 12. Legal Proceedings.................................................... Not Applicable
Item 13. Table of Contents of the Statement of Additional
Information.......................................................... Table of Contents of the Statement of
Additional Information
Items In
Part B Caption Location in Statement of Additional Information
------------------------------------------------------------------------------------------------------------------------------------
Item 14. Cover Page......................................................... Front Cover Page
Item 15. Table of Contents.................................................. Front Cover Page
Item 16. General Information and History.................................... Not Applicable
Item 17. Investment Objective and Policies.................................. Investment Objective and Policies;
Investment Policies and Restrictions;
Investment Policies and Techniques
Item 18. Management......................................................... Management of the Fund;
Item 19. Control Persons and Principal Holders of Securities................ Management of the Fund; Security Ownership
of Certain Beneficial Owners; Ownership of
the Fund by Directors; Director and Officer
Compensation; Committees of the Board of
Directors
Item 20. Investment Advisory and Other Services............................. Management of the Fund; Investment
Adviser and Other Service Providers;
Compensation to the Advisers and
Administrators; Duration and Termination of
the Investment Advisory Agreement;
Potential Conflicts of Interest
Item 21. Brokerage Allocation and Other Practices........................... Proxy Voting; Code of Ethics; Portfolio
Transactions, Brokerage Allocation and Other
Practices
Item 22. Tax Status......................................................... Federal Income Tax Matters
Item 23. Financial Statements............................................... Financial Statements
PART C OTHER INFORMATION
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C to this Registration Statement.
The information in this Prospectus is not complete and may be changed. A
registration statement relating to the Securities has been filed with the
Securities and Exchange Commission. We may not sell these securities until this
registration statement is effective. This Prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these securities in
any state where the offer, solicitation or sale is not permitted.
SUBJECT TO COMPLETION, JUNE __, 2007
PROSPECTUS
11,383,335 RIGHTS FOR 11,383,335 SHARES
BOULDER GROWTH & INCOME FUND, INC.
COMMON STOCK
The Boulder Growth & Income Fund, Inc. (the "Fund") is issuing transferable
rights ("Rights") to its holders of record of shares ("Shares") of common stock
("Common Stock") (such holders, "Common Stockholders"). These Rights will allow
Common Stockholders to subscribe for new Shares. For every one Right a Common
Stockholder receives, such Common Stockholder will be entitled to buy one new
Share. Each Common Stockholder will receive one Right for each outstanding Share
it owns on June 15, 2007 (the "Record Date"). Fractional Shares will not be
issued upon the exercise of the Rights. Accordingly, the number of Rights to be
issued to a Common Stockholder on the Record Date will be rounded down to the
nearest whole number of Rights in cases where Common Stockholders own fractional
Shares. Common Stockholders on the Record Date and purchasers of Rights may
purchase Shares not acquired by other Common Stockholders in this Rights
offering (the "Offering"), subject to limitations discussed in this Prospectus.
See "The Offering - Over-Subscription Privilege" below.
Rights are transferable and will be listed for trading on the New York Stock
Exchange ("NYSE") under the symbol "BIF RT" for the duration of the Offering.
The Shares are listed and the Shares issued pursuant to this Offering will be
listed on the NYSE under the symbol "BIF." On May 4, 2007, the last reported net
asset value ("NAV") per Share was $9.20 and the last reported sales price per
Share on the NYSE was $12.73, which represents a 38.37% premium to the Fund's
NAV per Share. The subscription price per Share (the "Subscription Price") will
be the greater of (a) the NAV per Share on the date of expiration of the
Offering (referred to herein as the "Expiration Date") or (b) 80% of the
volume-weighted average sales price per Share on the NYSE on the Expiration Date
and the four immediately preceding trading days. The "volume-weighted average
sales price" takes into consideration the volume and sale price of each and
every sale of the Shares during a 5-day trading period.
STOCKHOLDERS WHO CHOOSE TO EXERCISE THEIR RIGHTS WILL NOT KNOW THE SUBSCRIPTION
PRICE PER SHARE AT THE TIME THEY EXERCISE SUCH RIGHTS SINCE THE OFFERING WILL
EXPIRE (I.E., CLOSE) PRIOR TO THE AVAILABILITY OF THE FUND'S NAV AND OTHER
RELEVANT MARKET INFORMATION ON THE EXPIRATION DATE. ONCE A STOCKHOLDER
SUBSCRIBES FOR SHARES AND THE FUND RECEIVES PAYMENT OR GUARANTEE OF PAYMENT,
SUCH STOCKHOLDER WILL NOT BE ABLE TO CHANGE ITS DECISION. THE OFFERING WILL
EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON _______________, 2007 (THE
"EXPIRATION DATE"), UNLESS THE OFFERING IS EXTENDED AS DISCUSSED IN THIS
PROSPECTUS.
For more information, please call _________________ (the "Information Agent")
toll free at [1-_____________].
The Fund is a registered closed-end, non-diversified management investment
company incorporated under the laws of the State of Maryland. The Fund's
investment objective is total return. The Fund seeks to produce both long-term
capital appreciation through investment in common stocks and high current income
consistent with preservation of capital through investments in income producing
securities. See "Investment Objective and Policies". There can be no assurance
that the Fund's investment objective will be achieved. Boulder Investment
Advisers, LLC ("BIA") and Stewart West Indies Trading Company, Ltd. doing
business as Stewart Investment Advisers ("SIA") (collectively the "Advisers")
act as the investment advisers to the Fund. The address of the Fund and BIA is
2344 Spruce Street, Suite A, Boulder, Colorado 80302. The address for SIA is
Bellerive, Queen Street, St. Peter, Barbados.
AN INVESTMENT IN THE FUND IS NOT APPROPRIATE FOR ALL INVESTORS. NO ASSURANCES
CAN BE GIVEN THAT THE FUND'S INVESTMENT OBJECTIVE WILL BE ACHIEVED. FOR A
DISCUSSION OF CERTAIN RISK FACTORS AND SPECIAL CONSIDERATIONS WITH RESPECT TO
OWNING SHARES OF THE FUND, SEE "RISK FACTORS" ON PAGE 26 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
=============== ======================================= ===================================== ======================================
Estimated Subscription Price Estimated Sales Load Estimated Proceeds to the Fund (2)
=============== ======================================= ===================================== ======================================
Per Share $9.98(1) None $9.98
Total $9.98 None $227,120,300(3)
=============== ======================================= ===================================== ======================================
(1) Since the Subscription Price will not be determined until after printing and
distribution of this Prospectus, the Subscription Price above is estimated based
on the NYSE's closing price per Share on May 4, 2007 and applying the pricing
formula set forth on the Cover Page and described below under "Subscription
Price" (i.e., the greater of (a) the NAV per Share on the Expiration Date or (b)
80% of the volume-weighted average sales price per Share on the NYSE on the
Expiration Date and the four immediately preceding trading days). The
volume-weighted average closing sales price of the Shares on May 4, 2007, was
$12.47 per Share. See "The Offering - Subscription Price" and "The Offering -
Payment For Shares" below.
(2) Proceeds to the Fund before deduction of expenses incurred by the Fund in
connection with the Offering. Offering expenses are estimated to be
approximately $152,000. Funds received by check prior to the final due date of
this Offering will be deposited in a segregated interest-bearing account pending
allocation and distribution of Shares. Interest on subscription monies will be
paid to the Fund regardless of whether Shares are issued by the Fund; interest
will not be used as credit toward the purchase of Shares.
(3) 11,383,335 Shares representing $113,560,150 of proceeds can only be issued
if, pursuant to the Offering, Common Stockholders and Rights Purchasers (as
defined below) fully subscribe for Excess Shares (as defined below) under the
Over-Subscription Privilege (as defined below).
---------------------------------------------------
Trusts and other entities affiliated with the Horejsi family hold ______% of the
Common Stock, and certain other persons affiliated with the Fund and the
Advisers (collectively referred to herein as the "Horejsi Affiliates" and more
specifically described on Pages 30 and 41 of this Prospectus and in the
Statement of Additional Information), may be deemed to control the Fund. The
Horejsi Affiliates have indicated that they will fully subscribe in the Primary
Subscription (defined below) on the same terms as other Common Stockholders. The
Horejsi Affiliates do not expect to subscribe in the Over-Subscription Privilege
(defined below). See "The Offering - Over-Subscription Privilege" below.
This Prospectus concisely sets forth certain information about the Fund that a
prospective investor should know before investing. Investors are advised to read
and retain it for future reference. A Statement of Additional Information, dated
June 18, 2007 (the "SAI"), containing additional information about the Fund has
been filed with the Securities and Exchange Commission and is incorporated by
reference in its entirety into this Prospectus. A copy of the SAI, the table of
contents of which appears on Page 55 of this Prospectus, may be obtained without
charge by contacting [__________________], the Fund's Information Agent, at
1-__________. The SAI will be sent within two business days of receipt of a
request.
TABLE OF CONTENTS
PROSPECTUS SUMMARY................................................................................................7
IMPORTANT TERMS OF THE OFFERING..................................................................................15
IMPORTANT DATES FOR THE OFFERING.................................................................................15
KEY ELEMENTS OF THE OFFERING.....................................................................................15
FEE TABLE........................................................................................................18
FINANCIAL HIGHLIGHTS.............................................................................................19
THE FUND.........................................................................................................19
USE OF PROCEEDS..................................................................................................19
INVESTMENT OBJECTIVE AND POLICIES................................................................................20
INVESTMENT PHILOSOPHY............................................................................................22
PORTFOLIO CONTENTS...............................................................................................22
RISK FACTORS.....................................................................................................26
THE OFFERING.....................................................................................................29
INFORMATION ABOUT THE FUND.......................................................................................39
MANAGEMENT OF THE FUND...........................................................................................39
OWNERSHIP OF THE FUND BY INDEPENDENT DIRECTORS...................................................................41
FEDERAL INCOME TAX MATTERS.......................................................................................45
DETERMINATION OF NET ASSET VALUE.................................................................................47
CAPITALIZATION OF THE FUND AND OTHER MATTERS.....................................................................48
DIVIDENDS AND DISTRIBUTIONS......................................................................................52
CUSTODIAN AND TRANSFER AGENT.....................................................................................53
LEGAL MATTERS....................................................................................................53
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM....................................................................54
ADDITIONAL INFORMATION...........................................................................................54
PRIVACY PRINCIPLES OF THE FUND...................................................................................54
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION.....................................................55
PROSPECTUS SUMMARY
This summary highlights some information that is described more fully elsewhere
in this Prospectus. It may not contain all of the information that is important
to a stockholder or prospective stockholder. To understand the Offering fully,
each stockholder or prospective stockholder should read the entire document
carefully, including the risk factors as set forth below.
The Fund
Boulder Growth & Income Fund, Inc. (the "Fund") is a non-diversified,
closed-end management investment company organized in October 1972 and
began investment activities in January 1974. Shares (defined below) of
common stock ("Common Stock") of the Fund are traded on the New York
Stock Exchange (the "NYSE") under the symbol "BIF." As of May 4, 2007,
the Fund had 11,383,335 Shares and 1,000 shares of auction market
preferred stock outstanding. The average weekly trading volume of the
Shares on the NYSE during the period from [May 1, 2007] through [May
31, 2007] was [_________] Shares. As of May 4, 2007, the total net
assets of the Fund were approximately $129.73 million, including $25
million in auction market preferred stock leverage. The Fund's
investment advisers are Boulder Investment Advisers, LLC ("BIA") and
Stewart West Indies Trading Company, Ltd. d/b/a Stewart Investment
Advisers ("SIA") (collectively, the "Advisers"). The address of the
Fund and BIA is 2344 Spruce Street, Suite A, Boulder, Colorado 80302.
The address of SIA is Bellerive, Queen Street, St. Peter, Barbados.
The Offering
The Fund is issuing to its holders of record of Common Stock ("Common
Stockholders") as of the close of business on June 15, 2007 (the
"Record Date") transferable rights ( "Rights") to subscribe for an
aggregate of approximately 11,384,000 Shares of Common Stock, par
value $0.01 per share ( "Shares") (the "Offer"). Common Stockholders
will receive one Right for each outstanding Share held as of the
Record Date. The number of Rights to be issued will be rounded down to
the nearest whole number in cases where Common Stockholders own
fractional Shares. For every Right that a Common Stockholder receives,
such Common Stockholder may subscribe for one new Share of the Fund at
a subscription price equal to the greater of (a) the NAV per Share on
the date of expiration of the Offering (referred to herein as the
"Expiration Date") or (b) 80% of the volume-weighted average sales
price per Share on the NYSE on the Expiration Date and the four
immediately preceding trading days. The "volume-weighted average sales
price" takes into consideration the volume and sale price of each and
every sale of the Shares during a 5-day trading period. No fractional
Shares will be issued. The Rights of a Common Stockholder to acquire
Shares during the Subscription Period is referred to as the "Primary
Subscription." See "The Offering."
Purpose of the Offering
The Board of Directors of the Fund (the "Board") has determined that
it would be in the best interests of the Fund and its existing
stockholders to increase the assets of the Fund. The primary reasons
include:
* The Primary Subscription will provide existing Common
Stockholders an opportunity to purchase additional Shares at a
price that is potentially below market value without incurring
any commission or transaction charges.
* Raising more cash will better position the Fund to take advantage
of investment opportunities that may arise.
* Increasing the Fund's assets will provide the Fund flexibility in
maintaining the Distribution Policy (defined below). The
Distribution Policy permits holders of Common Stock to realize a
predictable, but not assured, level of cash flow and some
liquidity periodically with respect to their Common Stock without
having to sell Shares.
* Increasing Fund assets may lower the Fund's expenses as a
proportion of net assets because the Fund's fixed costs would be
spread over a larger asset base. There can be no assurance that
by increasing the size of the Fund, the Fund's expense ratio will
be lowered.
* Since the Offering will increase the Fund's outstanding Shares,
it will likely increase the number of beneficial owners of the
Shares, which could increase the level of market interest in and
visibility of the Fund and improve the trading liquidity of the
Shares on the NYSE.
* The distribution of the Rights, which themselves are expected to
have intrinsic value, provides non-participating stockholders the
possibility of receiving a cash payment upon the sale of their
Rights.
* Increasing the Fund's total assets will reduce the Fund's
leverage as a percentage of assets from ____% to approximately
____% (assuming the Offering is fully subscribed). The Fund is
currently leveraged with $25 million of Auction Market Preferred
Shares (the "AMPS") and the Fund intends to maintain this amount
of leverage. Because leveraging increases risk, the additional
assets from the Offering will mitigate risks commonly associated
with leverage.
* The increase in assets will result in the Fund exceeding the
AMPS' asset-coverage ratio requirements under its Articles
Supplementary by a wider margin, thus giving the Fund greater
flexibility to buy and hold investments without violating those
requirements.
Investment Objective and Principal Investment Strategies
The Fund's investment objective is total return. The Fund seeks to
produce both income and long-term capital appreciation by investing in
a portfolio of equity and debt securities. The Fund invests primarily
in common stocks, including dividend paying common stocks such as
those issued by utilities, real estate investment trusts ("REITs") and
regulated investment companies under the Code (as defined below)
("RICs"). The Fund also invests in fixed income securities such as
U.S. government securities, preferred stocks and bonds. The Fund
invests primarily in securities of U.S.-based companies and to a
lesser extent in foreign equity securities and sovereign debt, in each
case denominated in foreign currency. The Fund has no restrictions on
its ability to invest in foreign securities. The Fund is concentrated
in real estate related companies, which means it must invest more than
25% of its total assets in REITs or the equity or debt securities of
companies in or primarily servicing the real estate industry or
deriving a substantial portion of their revenue from, or having a
substantial portion of their assets invested in, real estate ("Real
Estate Related Companies"). No assurance can be given that the Fund
will achieve its investment objective. See "Investment Objective and
Policies."
The Fund is a "non-diversified" investment company, as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"), which
means that it is permitted to invest its assets in a more limited
number of issuers than "diversified" investment companies. A
diversified company may not, with respect to 75% of its total assets,
invest more than 5% of its total assets in the securities of any one
issuer and may not own more than 10% of the outstanding voting
securities of any one issuer. However, under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), (A) not more
than 25% of the Fund's total assets may be invested in securities of
any one issuer (other than U.S. government securities and RICs) or of
any two or more issuers controlled by the Fund which may be deemed to
be engaged in the same, similar or related trades or businesses; and
(B) with respect to 50% of the total value of the Fund's portfolio,
(i) the Fund must limit to 5% the portion of its assets invested in
the securities of a single issuer (other than U.S. government
securities and RICs), and (ii) the Fund may not own more than 10% of
the outstanding voting securities of any one issuer (other than U.S.
government securities and RICs). The Fund intends to concentrate its
common stock investments in a few issuers and to take large positions
in those issuers, consistent with being a "non-diversified" fund. As a
result, the Fund may be subject to a greater risk of loss than a
diversified fund or a fund that has diversified its investments more
broadly. Taking larger positions is also likely to increase the
volatility of the Fund's net asset value, reflecting fluctuation in
the value of large Fund holdings.
The Fund has adopted a concentration policy pursuant to which it must,
under normal market conditions, invest more than 25% of its total
assets in Real Estate Related Companies. The Fund must obtain
stockholder approval prior to changing this policy. Real Estate
Related Companies include, but are not limited to: REITs and other
closed-end registered investment companies that invest primarily in
REITs; home builders; real estate developers; property management
companies; real estate brokerage companies; commercial and industrial
construction companies; financial companies who make or service real
estate mortgages and/or construction loans; title, homeowners and
builders risk insurance companies; manufacturers, distributors and
retailers of construction materials and/or building supplies; lumber,
paper, forest products, and other companies with significant real
estate holdings; holding companies of any of these companies; and any
other companies that the Fund's advisers reasonably determine are
"real estate related companies". Although the Fund may invest in Real
Estate Related Companies of any size, it currently intends to invest
in such companies with market capitalizations of greater than $500
million. Although the Fund generally invests in U.S.-based Real Estate
Related Companies, such companies may invest directly or indirectly in
non-U.S. properties, and the Fund may make direct investments in
foreign real estate related companies.
Under the 1940 Act, the Fund is subject to certain conditions and
restrictions with regard to its investments in RICs (see "Portfolio
Contents - Registered Investment Companies"). Under Subchapter M, no
single investment can exceed 25% of the Fund's total assets at the
time of purchase. These percentage limitations are calculated at the
time of investment, and the Fund is not required to dispose of assets
if holdings increase above these levels due to appreciation. As of May
4, 2007, _____% of the Fund's total assets were invested in RICs, and
32.90% of the Fund's total assets were invested in Berkshire Hathaway,
Inc. (NYSE: BRK). The Fund has no restrictions on its ability to
invest in foreign securities. As of May 4, 2007, _____% of the Fund's
total assets were invested in foreign securities.
Under normal market conditions, the Fund intends to invest at least
80% of its total assets in common stocks, primarily domestic common
stocks and secondarily in foreign common stocks denominated in foreign
currencies. The Fund's investments in common stocks may include, but
is not limited to, RICs whose objective is income, REITs, and other
dividend-paying common stocks. The portion of the Fund's assets that
are not invested in common stocks may be invested in fixed income
securities, cash equivalents and other income-producing securities.
The term "fixed income securities" includes but is not limited to
corporate bonds, U.S. government securities, notes, bills, debentures,
preferred stocks, convertible securities, bank debt obligations,
repurchase agreements and short-term money market obligations.
Under normal market conditions, the Fund will not have more than 20%
of its assets in cash or cash equivalents. The Fund may, for temporary
defensive purposes, allocate a higher portion of its assets to cash
and cash equivalents. For this purpose, cash equivalents consist of,
but are not limited to, short-term (less than twelve months to
maturity) U.S. government securities, certificates of deposit and
other bank obligations, investment grade corporate bonds, other debt
instruments and repurchase agreements.
Except for the Fund's investment objective, industry concentration and
fundamental investment restrictions as described in this Prospectus
and in the SAI, the percentage limitations and investment policies set
forth in this Prospectus can be changed by the Board without
stockholder approval.
Use of Leverage by the Fund
The Fund expects to utilize financial leverage on an ongoing basis for
investment purposes specifically through the issuance of the AMPS. In
October 2005, the Fund issued 1,000 shares of AMPS at a purchase price
of $25,000 per share plus accrued dividends. As of May 4, 2007, the
Fund's total leverage from the issuance of AMPS was approximately
____% of the Fund's total assets. This amount may change, but the Fund
will not incur additional leverage in the form of preferred shares if
as a result its total leverage would exceed 50% of the Fund's total
assets. Although the Fund may in the future offer other preferred
shares, increase the number of AMPS, or incur other indebtedness,
which would further leverage the Fund, the Fund does not currently
intend to offer preferred shares or to incur indebtedness, other than
short-term credits in connection with the settlement of portfolio
transactions.
The Fund generally will not utilize leverage if the Advisers
anticipate that leverage would result in a lower return to Common
Stockholders over time. Use of financial leverage creates an
opportunity for increased returns for the Common Stockholders but, at
the same time, creates the possibility for greater loss (including the
likelihood of greater volatility of net asset value and market price
of the Shares and of dividends), and there can be no assurance that a
leveraging strategy will be successful during any period in which it
is employed. Because the fees paid to the Advisers and FAS (defined
below) will be calculated on the basis of the Fund's managed assets,
the fees will be higher when leverage (including the AMPS) is
utilized, giving the Advisers an incentive to utilize leverage.
Dividends and Distributions
In May 2006, the Fund adopted a managed distribution policy pursuant
to which Common Stockholders would receive a consistent, but not
assured, periodic cash payment (the "Distribution Policy"). Presently,
under the Distribution Policy, the Fund makes regular distributions at
the rate of $0.115 per Share per month, or $1.38 annually. All monthly
payments are subject to the Board's right to suspend, modify, or
terminate the Distribution Policy at any time.
Rights holders who exercise their Rights, will receive newly issued
Shares within fifteen (15) days of the record date of the most recent
monthly payment under the Distribution Policy, which record date may
occur during the Subscription Period. Common Stockholders who receive
newly issued Common Stock in the Offering will not receive a
distribution under the Distribution Policy with respect to such newly
issued Shares for the record date immediately prior to issuance of the
newly issued Shares. Common Stockholders will be entitled to receive
monthly distributions for record dates subsequent to their receipt of
newly issued Common Stock in accordance with the Distribution Policy.
The Offering will not impact the distributions to be paid to current
Common Stockholders regardless of whether they exercise or sell their
Rights or allow their exercised Rights to lapse, subject to
suspension, termination, or modification of the Distribution Policy by
the Board at any time.
See "Dividends and Distributions - Managed Distribution Policy".
Dividend Reinvestment Policy
Common Stockholders receive all dividends and capital gains
distributions in cash. However, the Fund has established a dividend
reinvestment plan under which all Common Stockholders whose Shares are
registered in their own name may elect to have all such dividends and
distributions automatically reinvested in additional Shares. Common
Stockholders who elect to hold their Shares in the name of a broker or
nominee should contact such broker or nominee to determine whether
they may participate in the Plan. See "Dividends and Distributions -
Dividend Reinvestment Plan."
Risk Factors
General Risks of Investing in the Fund. The Fund is not a complete
investment program and should only be considered as an addition to an
investor's existing diversified portfolio of investments. Due to
uncertainty inherent in all investments, there can be no assurance
that the Fund will achieve its investment objectives.
* Non-Diversified Status Risk. The Fund is classified as
"non-diversified" under the 1940 Act. As a result, it can invest
a greater portion of its assets in obligations of a single issuer
than a "diversified" fund. The Fund will therefore be more
susceptible than a diversified fund to being adversely affected
by any single corporate, economic, political or regulatory
occurrence. The Fund intends to diversify its investments to the
extent necessary to qualify, and maintain its status, as a
regulated investment company under U.S. federal income tax laws.
See "Risk Factors" and "Federal Income Tax Matters."
* Investments in Common Stocks. The Fund intends to invest, under
normal market conditions, at least 80% of its total assets in
publicly traded common stocks. Common stocks generally have
greater risk exposure and reward potential over time than bonds.
The volatility of common stock prices has historically been
greater than bonds, and as the Fund invests primarily in common
stocks, the Fund's net asset value may also be volatile. Further,
because the time horizon for the Fund's investments in common
stock is longer, the time necessary for the Fund to achieve its
objective of total return will likely be longer than for a fund
that invests solely for income.
* Concentration Risk. The Fund intends to concentrate its common
stock investments in a few issuers and to take large positions in
those issuers, consistent with being a "non-diversified" fund. As
a result, the Fund may be subject to a greater risk of loss than
a diversified fund or a fund that has diversified its investments
more broadly. Taking larger positions is also likely to increase
the volatility of the Fund's net asset value, reflecting
fluctuation in the value of large Fund holdings.
* Investment in Berkshire Hathaway. The Fund presently has invested
a significant percentage of its portfolio in Berkshire Hathaway,
Inc. (NYSE: BRK) ("Berkshire"). As of May 4, 2007, the Fund held
750 Berkshire Class A shares, representing 32.90% of the Fund's
total assets. The Advisers do not currently intend to liquidate
any portion of the Fund's position in Berkshire. Although not an
insurance company itself, Berkshire owns Geico Insurance, General
Re Insurance and other insurance companies, and therefore derives
a significant portion of its income, and its value, from
insurance companies. The insurance business can be significantly
affected by interest rates as well as price competition within
the industry. In addition, an insurance company may experience
significant changes in its year to year operating performance
based both on claims paid and on performance of invested assets.
Insurance companies can also be affected by government
regulations and tax laws, which may change from time to time. A
significant decline in the market price of Berkshire or any other
company in which the Fund has made a significant common stock
investment (i) would result in a significant decline in the
Fund's net asset value; (ii) may result in a proportionate
decline in the market price of the Shares; and (iii) may result
in greater risk and market fluctuation than a fund that has a
more diversified portfolio.
* Investments in Real Estate Related Companies. The Fund has
adopted a concentration policy pursuant to which it must, under
normal market conditions, invest more than 25% of its total
assets in Real Estate Related Companies. The Fund must obtain
stockholder approval prior to changing this policy, thus limiting
its flexibility to liquidate such companies in the future should
market conditions warrant. Since the Fund will concentrate its
assets in the real estate industry, the Fund's performance will
be generally linked to performance of the real estate markets.
Property values may fall due to increasing vacancies or declining
rents resulting from economic, legal, cultural or technological
developments. REIT and other Real Estate Related Company prices
also may drop because of the failure of borrowers to pay their
loans and poor management. Many REITs utilize leverage, which
increases investment risk and could adversely affect a REIT's
operations and market value in periods of rising interest rates,
as well as risks normally associated with debt financing. In
addition, there are risks associated with particular sectors of
real estate investments (e.g., retail, office, hotel, healthcare
and multifamily properties), although the Fund does not intend to
focus on any particular sector of real estate investments.
* Leveraging Risk. The Fund is currently leveraged with the AMPS.
Use of leverage may have a number of adverse effects on the Fund
and its stockholders including: (i) leverage may magnify market
fluctuations in the Fund's underlying holdings thus causing a
disproportionate change in the Fund's net asset value; (ii) the
Fund's cost of leverage may exceed the return on the underlying
securities acquired with the proceeds of the leverage, thereby
diminishing rather than enhancing the return to stockholders and
generally making the Fund's total return to such stockholders
more volatile; (iii) the Fund may be required to sell investments
in order to meet dividend or interest payments on the debt or
preferred stock it has issued when it may be disadvantageous to
do so; (iv) leveraging through the issuance of preferred stock
requires that the holders of the preferred stock have class
voting rights on various matters that could make it more
difficult for Common Stockholders to change the investment
objective or fundamental policies of the Fund, to convert it to
an open-end fund or make certain other changes; and (v) the Fund
may be forced to redeem some or all of the AMPS at inopportune
times due to a decline in market value of Fund investments.
Because the fees paid to the Advisers and FAS (defined below)
will be calculated on the basis of the Fund's managed assets, the
fees will be higher when leverage (including the AMPS) is
utilized, giving the Advisers an incentive to utilize leverage.
* Managed Distribution Policy. In May 2006, the Fund adopted the
Distribution Policy. Presently, under the Distribution Policy,
the Fund makes regular distributions at the rate of $0.115 per
Share per month, or $1.38 annually, subject to the Board's right
to suspend, modify or terminate the Distribution Policy at any
time. There are certain risks and negative impacts associated
with the Distribution Policy:
- In certain circumstances where the Fund utilizes its capital
loss carry-forwards to offset realized capital gains and
pays out a distribution, there will likely be a negative tax
impact on Common Stockholders.
- The Distribution Policy may impact the way in which the Fund
is managed. For example, the Fund may carry a higher balance
of cash so that it is able to fulfill the distribution
payments. Also, the Advisers may sell investments they would
not otherwise sell in order to make payments under the
Distribution Policy.
- The Distribution Policy is subject to modification,
suspension or termination at any time by the Board.
Suspension or termination of the Distribution Policy may be
required if the Fund has exhausted its capital loss
carry-forwards and has not been successful in obtaining
exemptive relief from Section 19(b) and Rule 19b-1 of the
1940 Act. Presently the Fund has applied for such exemptive
relief. It is not possible predict when or if such exemptive
relief might be forthcoming or when the Fund's capital loss
carry-forwards will be exhausted.
- A suspension or termination of the Distribution Policy could
have the effect of abruptly creating a trading discount (if
the Fund is trading at or above NAV) or widening an existing
trading discount.
- If the Fund's annual total return is less than the annual
distribution, the Distribution Policy could have the effect
of shrinking the assets of the Fund and thus increasing the
Fund's expense ratio (i.e., the Fund's fixed expenses will
be spread over a smaller pool of assets).
- A distribution which contains a return of capital, which the
Fund expects will be the case, will require Common
Stockholders to adjust their cost basis by the amount of
return of capital so that when they sell their Shares, their
cost basis will be lower. This will add to the record
keeping requirements of Common Stockholders.
- The Fund may have a position in a stock with an unrealized
capital gain which it may have no intention of selling, but
through a tender or merger, may be forced unexpectedly to
realize the capital gain. Realizing any such capital gains
may accelerate the exhaustion of the Fund's capital loss
carry-forwards, which may cause suspension or termination of
the Distribution Policy.
* Discount From Net Asset Value. The common stock of closed-end
funds frequently trades at a market price that is less than the
value of the net assets attributable to those shares (a
"discount"). The possibility that the Shares will trade at a
discount from net asset value is a risk separate and distinct
from the risk that the Fund's net asset value will decrease. The
risk of purchasing shares of a closed-end fund that might trade
at a discount or unsustainable premium is more pronounced for
investors who wish to sell their shares in a relatively short
period of time because, for those investors, realization of a
gain or loss on their investments is likely to be more dependent
upon the existence of a premium or discount than upon portfolio
performance.
* Size of the Fund. As of May 4, 2007, the Fund had total net
assets of approximately $129.73 million, including $25 million in
AMPS leverage. As a fund with a relatively small asset base, the
Fund may be subject to certain operational inefficiencies
including: higher expense ratio, less coverage by analysts and
the marketplace in general which can contribute to a less active
trading market for the Shares and consequently a wider discount,
more limited ability to attract new investors and/or take
advantage of investment opportunities and less ability to take
advantage of lower transaction costs available to larger
investors.
* Repurchase of the Shares. The Fund is authorized to repurchase
Shares on the open market when the Shares are trading at a
discount from net asset value as determined by the Board from
time to time. The acquisition of Shares by the Fund will decrease
the total assets of the Fund and, therefore, have the effect of
increasing the Fund's expense ratio and may adversely affect the
ability of the Fund to achieve its investment objectives.
Furthermore, the acquisition of Shares by the Fund may require
the Fund to redeem the AMPS in order to maintain certain asset
coverage requirements. To the extent the Fund may need to
liquidate investments to fund the repurchase of Shares, this may
result in portfolio turnover which will result in additional
expenses being borne by the Fund.
* Dependence on Key Personnel. The Advisers are dependent upon the
expertise of Stewart Horejsi in providing advisory services with
respect to the Fund's investments. If the Advisers were to lose
the services of Mr. Horejsi, their ability to service the Fund
could be adversely affected. There can be no assurance that a
suitable replacement could be found for Mr. Horejsi in the event
of his death, resignation, retirement or inability to act on
behalf of the Advisers.
* Issuer Risk. The value of the Fund's portfolio may decline for a
number of reasons which directly relate to the issuers of the
securities in the portfolio, such as management performance,
financial leverage and reduced demand for an issuer's goods and
services.
* Inflation Risk. Inflation risk is the risk that the value of
assets or income from investments will be worth less in the
future as inflation decreases the value of money. As inflation
increases, the real value of the Fund's portfolio can decline.
* Repurchase Agreements. The use of repurchase agreements involves
certain risks. For example, if the seller of securities under a
repurchase agreement defaults on its obligation to repurchase the
underlying securities, as a result of bankruptcy or otherwise,
the Fund will seek to dispose of such securities, which action
could involve costs or delays. If the seller becomes insolvent
and subject to liquidation or reorganization under applicable
bankruptcy or other laws, the Fund's ability to dispose of the
underlying securities may be restricted. Finally, it is possible
that the Fund may not be able to substantiate its interest in the
underlying securities.
* Foreign Securities Risk. The Fund is permitted to invest in
foreign securities without limitation. Investment in non-U.S.
issuers may involve unique risks compared to investing in
securities of U.S. issuers. These risks are more pronounced to
the extent that the Fund invests a significant portion of its
non-U.S. investments in one region or in the securities of
emerging market issuers. These risks may include:
- Less information about non-U.S. issuers or markets may be
available due to less rigorous disclosure, accounting
standards or regulatory practices.
- Many non-U.S. markets are smaller, less liquid and more
volatile. In a changing market, the Advisers may not be able
to sell the Fund's portfolio securities at times, in amounts
and at prices they consider reasonable.
- Currency exchange rates or controls may adversely affect the
value of the Fund's investments.
- The economies of non-U.S. countries may grow at slower rates
than expected or may experience downturns or recessions.
- Withholdings and other non-U.S. taxes may decrease the
Fund's return.
* Currency Risk. The Fund currently holds investments in foreign
securities and thus a portion of the Fund's assets may be quoted
or denominated in non-U.S. currencies. These securities may be
adversely affected by fluctuations in relative currency exchange
rates and by exchange control regulations. The Fund's investment
performance may be negatively affected by a devaluation of a
currency in which the Fund's investments are quoted or
denominated. Further, the Fund's investment performance may be
significantly affected, either positively or negatively, by
currency exchange rates because the U.S. dollar value of
securities quoted or denominated in another currency will
increase or decrease in response to changes in the value of such
currency in relation to the U.S. dollar. The Fund does not
currently hedge against the potential decline in value of foreign
currencies against the U.S. dollar and does not foresee hedging
currency risk in the future, though it is not precluded from
doing so.
* Sovereign Debt Risk. An investment in debt obligations of
non-U.S. governments and their political subdivisions ("sovereign
debt") involves special risks that are not present in corporate
debt obligations. The non-U.S. issuer of the sovereign debt or
the non-U.S. governmental authorities that control the repayment
of the debt may be unable or unwilling to repay principal or
interest when due, and the Fund may have limited recourse in the
event of a default. During periods of economic uncertainty, the
market prices of sovereign debt may be more volatile than prices
of debt obligations of U.S. issuers. In the past, certain
non-U.S. countries have encountered difficulties in servicing
their debt obligations, withheld payments of principal and
interest and declared moratoria on the payment of principal and
interest on their sovereign debt.
* Liquidity Risk. Although the Fund invests primarily in securities
traded on national exchanges, it may invest in less liquid assets
from time to time that are not readily marketable and may be
subject to restrictions on resale. Illiquid securities may be
more difficult to value or may impair the Fund's ability to
realize the full value of its assets in the event of a voluntary
or involuntary liquidation of such assets and thus may cause a
decline in the Fund's net asset value. The Fund has no limitation
on the amount of its assets that may be invested in securities
which are not readily marketable or are subject to restrictions
on resale, although it may not invest more than 30% of the value
of its total assets in securities which have been acquired
through private placement. In certain situations, the Advisers
could find it more difficult to sell such securities at times, in
amounts and at prices they consider reasonable.
* Market Disruption Risk. The terrorist attacks in the United
States on September 11, 2001 had a disruptive effect on the
securities markets. The Fund cannot predict the effects of
similar events in the future on the U.S. economy. These terrorist
attacks and related events, including the war in Iraq, its
aftermath, and continuing occupation of Iraq by coalition forces,
have led to increased short-term market volatility and may have
long-term effects on U.S. and world economies and markets. A
similar disruption of the financial markets could impact interest
rates, auctions, secondary trading, ratings, credit risk,
inflation and other factors relating to the Common Stock and
AMPS.
* Anti-Takeover Provisions Risk. The Fund's charter (the "Charter")
and bylaws (the "Bylaws") include provisions that could limit the
ability of other entities or persons to acquire control of the
Fund or to change the composition of its Board. Such provisions
could limit the ability of stockholders to sell their Shares at a
premium over prevailing market prices by discouraging a third
party from seeking to obtain control of the Fund. These
provisions include advance notice requirements for stockholder
proposals and super-majority voting requirements for certain
transactions with affiliates, open-ending the Fund or a merger,
liquidation, asset sale or similar transaction.
* Investments in RICs. The Fund may invest in securities issued by
other closed-end funds (or RICs) subject to such limitations,
restrictions and conditions as imposed by Federal law.
Accordingly, the Fund will be subject to the particular risks
associated with investing in other closed-end funds that are
separate from risks associated with the underlying investments
held such RICs. Both the Fund and any RICs in which it invests
have management fees. In addition, the RICs in which the Fund
invests will typically incur other operating expenses that are
borne by their investors, including the Fund. As a result, Fund
stockholders will bear not only the Fund's management fees and
operating expenses, but also the fees and expenses of the RICs in
which the Fund invests. Investors would bear less expense if they
invested directly in the underlying RICs in which the Fund
invests. The Fund may also invest in RICs that are not limited in
their portfolio trading activity and thus may experience high
portfolio turnover rates. Higher turnover rates generally result
in correspondingly greater brokerage commissions and other
transactional expenses which may be borne by the Fund, directly
or through its investment in RICs. Higher turnover rates also may
be more likely to generate capital gains that must be distributed
to Fund stockholders, either as a result of the Fund's receipt of
capital gains from RIC transactions or from the Fund's trading in
RICs or other investments.
Investment Advisers
The Fund is co-advised by Boulder Investment Advisers, LLC and Stewart
West Indies Trading Company, Ltd. d/b/a Stewart Investment Advisers.
The Advisers have been providing advisory services to the Fund since
January 2002, and to Boulder Total Return Fund, Inc. since March 1999.
As of November 30, 2006, the Advisers had a total of $_____ million in
assets under management. The Fund pays the Advisers an aggregate
monthly fee at the annual rate of 1.25% of the Fund's average monthly
total net assets (including the principal amount of leverage, if any)
(the "Adviser Fee"). At a regular meeting of the Board held on January
27, 2007, the Advisers agreed to a waiver of advisory fees at certain
"break-point" levels such that, in the future, the Adviser Fee would
be calculated at the annual rate of 1.25% on asset levels up to $400
million, 1.10% on assets levels between $400-$600 million; and 1.00%
on asset levels exceeding $600 million. The fee waiver agreement has a
one-year term and is renewable annually.
Administrator, Custodian, Transfer Agent, Registrar and Dividend Disbursing
Agent
Fund Administrative Services, LLC ("FAS") is an affiliate of the
Advisers and serves as the Fund's co-administrator. Under its
Administration Agreement with the Fund, FAS provides certain
administrative and executive management services to the Fund
including: providing the Fund's principal offices and executive
officers, overseeing and administering all contracted service
providers, making recommendations to the Board regarding policies of
the Fund, conducting stockholder relations, authorizing expenses and
other administrative tasks.
Under the Administration Agreement, FAS receives a monthly fee
calculated at an annual rate of 0.20% of the value of the Fund's
average monthly total net assets (including the principal amount of
leverage, if any) up to $250 million; 0.18% of the Fund's average
monthly total net assets on the next $150 million; and 0.15% on the
value of the Fund's average monthly total net assets over $400
million. FAS has agreed to waive a portion of its fee in order to
limit the Fund's total monthly administration expenses (including
administration, co-administration, transfer agent and custodian fees)
to 0.30% of the Fund's average monthly total net assets. The equity
owners of FAS are Evergreen Atlantic, LLC and the Lola Brown Trust No.
1B, each of which is considered to be an "affiliated person" of the
Fund as that term is defined in the 1940 Act.
Investors Bank & Trust Company ("Investors Bank") serves as the Fund's
co-administrator and custodian. As compensation for its services,
Investors Bank receives certain out-of-pocket expenses, transaction
fees and asset-based fees of 0.058% annually (or a minimum of $10,500
per month), which are accrued daily and paid monthly.
PFPC Inc. ("PFPC"), an indirect, majority-owned subsidiary of PNC
Financial Services Group, Inc., serves as the Fund's transfer agent,
dividend-paying agent and registrar for the Common Stock. As
compensation for PFPC's services as such, the Fund pays PFPC a monthly
fee plus certain out-of-pocket expenses.
Deutsche Bank Trust Company Americas serves as Auction Agent, transfer
agent, dividend paying agent and registrar for the AMPS.
IMPORTANT TERMS OF THE OFFERING
------------------------------------------------------------------------------------------------------------------------------------
Total number of Shares available for
Primary Subscription 11,383,335
Total number of Shares available in the Over-
Subscription Privilege 11,383,335
Number of Rights a Common Stockholder will
receive for each outstanding One Right for each Share(+)
Share owned by such Common Stockholder on
the Record Date
Number of Rights required to purchase one new
Share One Right for each new Share
Subscription Price The greater of (a) the NAV per Share on the Expiration Date or (b) 80%
of the volume-weighted average sales price per Share on the NYSE on
the Expiration Date and the four immediately preceding trading days.
Estimated Subscription Price $9.98
+ The number of Rights to be issued to a Common Stockholder on the Record Date
will be rounded down to the nearest whole number of Rights in cases where Common
Stockholders own fractional Shares. See "The Offering - Over-Subscription
Privilege" below.
IMPORTANT DATES FOR THE OFFERING
------------------------------------------------------------------------------------------------------------------------------------
Record Date Friday, June 15, 2007
Subscription Period June 20, 2007 to July 11, 2007
Expiration Date of the Offering July 11, 2007++
Deadline for delivery of Subscription Certificate and payment of Shares, July 11, 2007
or Notice of Guaranteed Delivery (*)
Deadline for payment pursuant to Notice of Guaranteed Delivery (*) Wednesday, July 18, 2007
Confirmation to participants July 23, 2007
Deadline for final payment for Shares (if any)** August 4, 2007
++ Unless the Offering is extended to a date no later than July 21, 2007.
* Record Date Stockholders (defined below) exercising Rights must deliver to
the Subscription Agent (defined below) by the Expiration Date either (i)
the Subscription Certificate together with the estimated payment or (ii) a
Notice of Guaranteed Delivery.
** Since the actual Subscription Price due from subscribing Common
Stockholders (vis-a-vis the Estimated Subscription Price above) will not be
determined until after printing and distribution of this Prospectus,
additional monies may be owed by subscribers.
KEY ELEMENTS OF THE OFFERING
--------------------------------------------------------------------------------
ONE-FOR-ONE OFFERING
The Offering will give Common Stockholders who own Common Stock on the
Record Date ("Record Date Stockholders") the right to purchase one new
Share for every one Right held. Common Stockholders will receive one
Right for every Share owned on the Record Date. For example, if a
Common Stockholder owns 100 Shares on the Record Date, such Common
Stockholder will receive 100 Rights entitling such Common Stockholder
to purchase 100 new Shares. Record Date Stockholders may exercise all
or some of their Rights.
TRANSFERABLE RIGHTS
The Rights issued in the Offering will be "transferable," will be
traded on the NYSE, and will provide non-subscribing Common
Stockholders the option of selling their Rights on the NYSE or through
the Subscription Agent. The distribution of the Rights, which
themselves may have intrinsic value, will also provide
non-participating Common Stockholders the possibility of receiving a
cash payment upon the sale of their Rights.
There can be no assurance that a liquid trading market will develop
for the Rights. The period during which Rights will trade will be
limited and, upon expiration of the Offering, the Rights will cease to
trade and will have no residual value. See "Sale of Rights" below. The
Shares to be issued pursuant to the Offering will be listed for
trading on the NYSE, subject to the NYSE being officially notified of
the issuance of such Shares.
SUBSCRIPTION PRICE
Under the Offering, new Shares will be sold at a price equal to the
greater of (a) the NAV per Share on the Expiration Date or (b) 80% of
the volume-weighted average sales price per Share on the NYSE on the
Expiration Date and the four immediately preceding trading days (the
greater being the "Estimated Subscription Price"). Management believes
that this pricing formula (versus a higher or lower percentage
discount or a pre-determined fixed price) will provide an incentive to
Common Stockholders to participate in the Offering.
OVER-SUBSCRIPTION PRIVILEGE & OVER-ALLOTMENT SHARES
If all of the Rights initially issued are not exercised by Record Date
Stockholders, any unsubscribed Shares will be offered to other Record
Date Stockholders who have exercised all or a portion of their Rights
as well as to subscribing purchasers of Rights ("Rights Purchasers")
who wish to acquire additional Shares (the "Over-Subscription
Privilege"). However, to the extent there are insufficient
unsubscribed Shares to satisfy all over-subscription requests, Record
Date Stockholders who have exercised all or a portion of their Rights
will have preference in the Over-Subscription Privilege as discussed
below. Also see "The Offering - Over-Subscription Privilege".
If there are not enough unsubscribed Shares to honor all
over-subscription requests, the Fund may, in its discretion, issue
additional Shares up to 100% of the Shares available in the Offering
to honor over-subscription requests with such additional Shares
subject to the same terms and conditions of this Offering (the
"Over-Allotment Shares"). The unsubscribed Shares and the
Over-Allotment Shares are collectively referred to as the "Excess
Shares".
If there are not enough Excess Shares to fully honor all
over-subscription requests, Excess Shares will be allocated first to
Record Date Stockholders who have exercised all or a portion of their
Rights in accordance with their over-subscription request. If there
are not enough Excess Shares to fully honor all over-subscription
requests by such Record Date Stockholders, the Excess Shares will be
allocated pro-rata among such Record Date Stockholders based on the
number of Rights exercised. Any Excess Shares remaining after
satisfying all over-subscription requests by such Record Date
Stockholders will be allocated among Rights Purchasers who
over-subscribe pro-rata based on the number of Rights exercised. See
"The Offering - Over-Subscription Privilege".
The Horejsi Affiliates have indicated that they will fully subscribe
in the Primary Subscription on the same terms as other Common
Stockholders. The Horejsi Affiliates do not expect to subscribe in the
Over-Subscription Privilege. However, if the Horejsi Affiliates fully
exercise their Rights in the Primary Subscription and the
Over-Subscription Privilege, under certain circumstances (e.g., low
participation by Common Stockholders in the Offering), the Horejsi
Affiliates could substantially increase their percentage ownership of
the Fund at an advantageous price.
METHOD FOR EXERCISING RIGHTS
Except as described below, subscription certificates evidencing the
Rights ("Subscription Certificates") will be sent to Record Date
Stockholders or their nominees. If a Record Date Stockholder wishes to
exercise Rights, it may do so in the following ways:
1. Complete and sign the Subscription Certificate. Enclose it in the
envelope provided, together with payment in full and mail or
deliver the envelope to Colbent Corporation (the "Subscription
Agent") at the address indicated on the Subscription Certificate,
calculating the total payment on the basis of the Estimated
Subscription Price of $9.98 per Share (i.e., the estimated
subscription price based on the Fund's NAV and market price on
May 4, 2007). The completed and signed Subscription Certificate
and payment must be received by the Expiration Date. PAYMENT
PURSUANT TO THIS METHOD MUST BE IN UNITED STATES DOLLARS BY MONEY
ORDER OR CHECK DRAWN ON A BANK LOCATED IN THE UNITED STATES, MUST
BE PAYABLE TO THE BOULDER GROWTH & INCOME FUND, INC. AND MUST
ACCOMPANY AN EXECUTED SUBSCRIPTION CERTIFICATE FOR SUCH
SUBSCRIPTION CERTIFICATE TO BE ACCEPTED. Because the subscription
price is estimated, each Record Date Shareholder participating in
the Offering should be prepared to pay additional monies (if any)
by the deadline for final payment for Shares as noted above under
"Important Dates for the Offering."
2. A Record Date Stockholder participating in the Offering may
contact its broker, banker or trust company, which can arrange,
on such Record Date Stockholder's behalf, to guarantee delivery
of payment and delivery of a properly completed and executed
Subscription Certificate pursuant to a notice of guaranteed
delivery ("Notice of Guaranteed Delivery") by the close of
business on the third Business Day (defined below) after the
Expiration Date. The broker, banker, or trust company may charge
such Record Date Stockholder a fee for this service; the Fund is
not responsible for paying any fees charged by any such broker,
bank, or trust company.
Rights holders will have no right to rescind a purchase after the
Subscription Agent has received the Subscription Certificate or Notice
of Guaranteed Delivery. See "The Offering - Method of Exercising
Rights" and "The Offering - Payment for Shares."
The Subscription Agent will deposit all checks received by it prior to
the final due date into a segregated interest bearing account at
Eastern Bank pending distribution of the Shares from the Offering. All
interest will accrue to the benefit of the Fund and investors will not
earn interest on payments submitted or be able to credit such interest
against any additional monies owed (if applicable).
--------------------------------------------------------------------------------
STOCKHOLDER INQUIRIES SHOULD BE DIRECTED TO __________________, THE FUND'S
INFORMATION AGENT, AT [__________________]
--------------------------------------------------------------------------------
SALE OF RIGHTS
The Rights are transferable until the Expiration Date and will be
admitted for trading on the NYSE. Although no assurance can be given
that a market for the Rights will develop, trading in the Rights on
the NYSE will begin on a "when-issued" basis beginning on or about the
Record Date and may be conducted until the close of trading on the
last NYSE trading day prior to the Expiration Date. The value of the
Rights, if any, will be reflected by the market price. Rights may be
sold by individual holders or may be submitted to the Subscription
Agent for sale. Any Rights submitted to the Subscription Agent for
sale must be received by the Subscription Agent on or before Tuesday,
July 10, 2007, one Business Day prior to the Expiration Date, due to
normal settlement procedures. Trading of the Rights on the NYSE will
be conducted on a when-issued basis until and including the date on
which the Subscription Certificates are mailed to Common Stockholders
and thereafter will be conducted on a regular way basis until and
including the last NYSE trading day prior to the Expiration Date. The
Shares will begin trading ex-Rights on a "when-issued" basis beginning
on or about the Record Date. If the Subscription Agent receives Rights
for sale in a timely manner, it will use its best efforts to sell the
Rights on the NYSE. Any commissions will be paid by the selling Rights
holders. Neither the Fund nor the Subscription Agent will be
responsible if Rights cannot be sold and neither has guaranteed any
minimum sales price for the Rights. The Fund is not responsible for
any Rights submitted to the Subscription Agent for sale by
Stockholders. For purposes of this Prospectus, a "Business Day" shall
mean any day on which trading is conducted on the NYSE.
OFFERING FEES AND EXPENSES
The Fund expects to incur approximately $152,000 of expenses in
connection with the Offering. See "The Offering - Expenses of the
Fund" below.
RESTRICTIONS ON FOREIGN STOCKHOLDERS
The Fund will not mail Subscription Certificates to Common
Stockholders whose record addresses are outside the United States or
who have an APO or FPO address. Common Stockholders whose addresses
are outside the United States or who have an APO or FPO address and
who wish to subscribe to the Offering either partially or in full
should contact the Subscription Agent by written instruction or
recorded telephone conversation no later than three Business Days
prior to the Expiration Date. If the Subscription Agent has received
no instruction by the third business day prior to the Expiration Date
or the Fund has determined that the Offering may not be made to a
particular Common Stockholder, the Subscription Agent will attempt to
sell all of such Common Stockholder's Rights and remit the net
proceeds, if any, to such Common Stockholder. If the Rights can be
sold, sales of these Rights will be deemed to have been effected at
the average-weighted sales price received by the Subscription Agent on
the day the Rights are sold, less any applicable brokerage
commissions, taxes and other expenses.
USE OF PROCEEDS
The net proceeds of the Offering are estimated to be approximately
$113,420,000. This figure is based on the Estimated Subscription Price
per Share of $9.98 and assumes all Rights offered are exercised and
that the expenses related to the Offering estimated at approximately
$152,000 are paid. Assuming all Over-Allotment Shares are sold in
addition to all Primary Subscription Shares, the gross proceeds of the
Offering are estimated to be approximately $272,935,994. The Advisers
anticipate that it may take up to six months for the Fund to invest
substantially all of the net proceeds of this Offering in accordance
with its investment objective and policies under current market
conditions. Pending such investment, the Fund anticipates investing
the proceeds in short-term securities issued by the U.S. government or
its agencies or instrumentalities or in high quality, short-term or
long-term debt obligations or money market instruments. See "Use of
Proceeds" below.
RISK FACTORS
See "Risk Factors" below.
FEE TABLE
STOCKHOLDER TRANSACTION EXPENSES
--------------------------------------------------------------------------------------------------------- --------------------------
Sales Load (as a percentage of the Offering price) $0
Dividend Reinvestment and Cash Purchase Plan Fees $0
CURRENT EXPECTED ANNUAL FUND EXPENSES BEFORE THE RIGHTS OFFERING
(as a percentage of net assets attributable to common shares) As of [11/30/06]
--------------------------------------------------------------------------------------------------------- --------------------------
Management Fees [___]%
Interest Payment on Borrowed Funds [___]%
Administration Fees [___]%
Other Expenses [___]%
[--------------------------------------------] [---]%
[--------------------------------------------] [---]%
[--------------------------------------------] [---]%
Acquired Funds [___]%
Total Annual Expenses [___]%
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------------------------------------------------ --------------- --------------- --------------- -----------------
A Common Stockholder would pay the following expenses on a
$1,000 investment assuming a 5% annual return. $[____] $[____] $[____] $[____]
The purpose of the foregoing table and example is to assist Rights holders in
understanding the various costs and expenses that an investor in the Fund bears,
directly or indirectly, BUT SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. THE ACTUAL EXPENSES OF THE FUND MAY BE
GREATER OR LESS THAN THOSE SHOWN. The figures provided under "Other Expenses"
are based upon estimated amounts for the current fiscal year. The 5% annual
return shown in this example is used for illustrative purposes only and in no
way should be construed as a guarantee of future performance of the Fund. For
more complete descriptions of certain of the Fund's cost and expenses, see
"Management of the Fund" in this Prospectus and the SAI. Also see "Expenses of
the Fund" below.
FINANCIAL HIGHLIGHTS
The table below sets forth selected financial data for a Share outstanding
throughout the period presented. The per Share operating performance and ratios
for the Fund's fiscal year ended November 30, 2006 were audited by Deloitte &
Touche LLP, the Fund's publicly registered independent accounting firm, as
stated in their report which is incorporated by reference into the SAI. The per
Share operating performance and ratios for the Fund's fiscal year ended November
30, 2005 were audited by KPMG LLP, the Fund's publicly registered independent
accounting firm during that period, as stated in their report which is
incorporated by reference into the SAI. The per Share operating performance and
ratios for the Fund's fiscal years ended November 30, 2004 and prior years were
also audited by the Fund's publicly registered independent accounting firm KPMG
LLP. The following information should be read in conjunction with the Financial
Statements and Notes thereto, which are incorporated by reference into the SAI.
The Table below contains per share operating performance data, total investment
returns, ratios to average net assets, and other supplemental data.
[INSERT TABLE OF FINANCIAL HIGHLIGHTS INFORMATION]
THE FUND
The Fund is a non-diversified, closed-end management investment company
organized as a Maryland corporation in October 1972. From its inception, and
prior to April 26, 2002, the Fund was named USLife Income Fund, Inc. and was
virtually 100% invested in corporate bonds. In January 2002, the Fund's largest
stockholder, the Ernest Horejsi Trust No. 1B, succeeded in replacing the Board
with a slate of its nominees. Soon thereafter, in April 2002, stockholders
approved changing the Fund's investment objective and corporate name, changing
the Fund's classification from diversified to non-diversified and changing or
eliminating a number of the Fund's fundamental investment restrictions.
Thereafter, the Fund began the process of liquidating its corporate bond
portfolio and began investing in common equities consistent with the new
investment objective.
As of May 4, 2007, the Fund had 11,383,335 Shares outstanding. The Common
Stock is traded on the NYSE under the symbol "BIF." The average weekly trading
volume of the Common Stock on the NYSE during the period from May 1, 2007,
through May 31, 2007 was [_______] Shares. As of May 4, 2007, the total net
assets of the Fund, including $25 million in AMPS leverage, were approximately
$129,726,682.
The following provides information about the Fund's outstanding Shares as
of May 4, 2007:
Amount held by
Amount the Fund or for its Amount
Title of Class Authorized Account Outstanding
------------------------------------------------------------ ---------------------- --------------------------- -----------------
Common Shares.......................... 250,000,000 0 11,383,335
AMPS................................... 1,000 0 1,000
USE OF PROCEEDS
Management estimates the net proceeds of the Offering to be approximately
$113,420,000 based on an Estimated Subscription Price of $9.98 per Share,
assuming the Offering is fully subscribed and the expenses related to the
Offering are approximately $152,000. Assuming all Over-Allotment Shares are sold
in addition to all Primary Subscription Shares, the gross proceeds of the
Offering are estimated to be approximately $227,120,300. The foregoing estimates
are based on the closing price of the Shares on May 4, 2007. Accordingly, the
assumptions and projections contained in this Prospectus are subject to change
significantly depending on changes in market conditions for the Shares and
performance of the Fund's portfolio.
The Advisers anticipate that it may take up to six months for the Fund to invest
substantially all of the net proceeds of this Offering in accordance with its
investment objective and policies under current market conditions. Pending such
investment, the Fund anticipates investing the proceeds in short-term securities
issued by the U.S. government or its agencies or instrumentalities or in high
quality, short-term or long-term debt obligations or money market instruments.
The increase in assets as a result in the Offering may also be used to help the
Fund maintain the Distribution Policy. The Distribution Policy permits Common
Stockholders to realize a predictable, but not assured, level of cash flow and
some liquidity periodically with respect to their Common Stock without having to
sell Shares. See the discussion regarding "Dividends and Distributions" below.
INVESTMENT OBJECTIVE AND POLICIES
Investment Objective. The Fund's investment objective is total return. The Fund
seeks to produce both income and long-term capital appreciation by investing in
a portfolio of equity and debt securities. The Fund invests primarily in common
stocks, including dividend paying common stocks such as those issued by
utilities, REITs and RICs. The Fund also invests in fixed income securities such
as U.S. government securities, preferred stocks and bonds. The Fund invests
primarily in securities of U.S.-based companies and to a lesser extent in
foreign equity securities and sovereign debt, in each case denominated in
foreign currency. The Fund has no restrictions on its ability to invest in
foreign securities. The Fund is concentrated in Real Estate Related Companies,
which means it must invest more than 25% of its total assets in such companies.
No assurance can be given that the Fund will achieve its investment objective.
Investment Policies. The Fund is a "non-diversified" investment company, as
defined in the 1940 Act, which means that it is permitted to invest its assets
in a more limited number of issuers than "diversified" investment companies. A
diversified company may not, with respect to 75% of its total assets, invest
more than 5% of its total assets in the securities of any one issuer and may not
own more than 10% of the outstanding voting securities of any one issuer.
However, under Subchapter M of the Code, (A) not more than 25% of the Fund's
total assets may be invested in securities of any one issuer (other than U.S.
government securities and RICs) or of any two or more issuers controlled by the
Fund which may be deemed to be engaged in the same, similar or related trades or
businesses; and (B) with respect to 50% of the total value of the Fund's
portfolio, (i) the Fund must limit to 5% the portion of its assets invested in
the securities of a single issuer (other than U.S. government securities and
RICs), and (ii) the Fund may not own more than 10% of the outstanding voting
securities of any one issuer (other than U.S. government securities and RICs).
The Fund intends to concentrate its common stock investments in a few issuers
and to take large positions in those issuers, consistent with being a
"non-diversified" fund. As a result, the Fund may be subject to a greater risk
of loss than a diversified fund or a fund that has diversified its investments
more broadly. Taking larger positions is also likely to increase the volatility
of the Fund's net asset value, reflecting fluctuation in the value of large Fund
holdings.
The Fund has adopted a concentration policy pursuant to which it must, under
normal market conditions, invest more than 25% of its total assets in Real
Estate Related Companies. The Fund must obtain stockholder approval prior to
changing this policy. Real Estate Related Companies include, but are not limited
to: REITs and other closed-end registered investment companies that invest
primarily in REITs; home builders; real estate developers; property management
companies; real estate brokerage companies; commercial and industrial
construction companies; financial companies who make or service real estate
mortgages and/or construction loans; title, homeowners and builders risk
insurance companies; manufacturers, distributors and retailers of construction
materials and/or building supplies; lumber, paper, forest products, and other
companies with significant real estate holdings; holding companies of any of
these companies; and any other companies that the Fund's advisers reasonably
determine are "real estate related companies". Although the Fund may invest in
Real Estate Related Companies of any size, it currently intends to invest in
such companies with market capitalizations of greater than $500 million.
Although the Fund generally invests in U.S.-based Real Estate Related Companies,
such companies may invest directly or indirectly in non-U.S. properties, and the
Fund may make direct investments in foreign Real Estate Related Companies.
Under the 1940 Act, the Fund is subject to certain conditions and restrictions
with regard to its investments in RICs (see "Portfolio Contents - Registered
Investment Companies"). Under Subchapter M of the Code, no single investment can
exceed 25% of the Fund's total assets at the time of purchase. These percentage
limitations are calculated at the time of investment, and the Fund is not
required to dispose of assets if holdings increase above these levels due to
appreciation. As of May 4, 2007, 0.00% of the Fund's total assets were invested
in RICs, and 32.90% of the Fund's total assets were invested in Berkshire
Hathaway, Inc. (NYSE: BRK). The Fund has no restrictions on its ability to
invest in foreign securities. As of May 4, 2007, _____% of the Fund's total
assets were invested in foreign securities.
Under normal market conditions, the Fund intends to invest at least 80% of its
total assets in common stocks, primarily domestic common stocks and secondarily
in foreign common stocks denominated in foreign currencies. The Fund's
investments in common stocks may include, but is not limited to, RICs whose
objective is income, REITs, and other dividend-paying common stocks. The portion
of the Fund's assets that are not invested in common stocks may be invested in
fixed income securities, cash equivalents and other income-producing securities.
The term "fixed income securities" includes but is not limited to corporate
bonds, U.S. government securities, notes, bills, debentures, preferred stocks,
convertible securities, bank debt obligations, repurchase agreements and
short-term money market obligations.
The portion of the Fund's assets that are not invested in common stocks may be
invested in fixed income securities (including bonds, U.S. government
securities, notes, bills, debentures, preferred stocks, convertible securities,
bank debt obligations, repurchase agreements and short-term money market
obligations), cash equivalents and income-producing common stocks. Under normal
market conditions, the Fund will not have more than 20% of its total assets in
cash or cash equivalents. The Fund may, for temporary defensive purposes,
allocate a higher portion of its assets to cash and cash equivalents. For this
purpose, cash equivalents consist of, but are not limited to, short-term (less
than twelve months to maturity) U.S. government securities, certificates of
deposit and other bank obligations, investment grade corporate bonds other debt
instruments and repurchase agreements.
The Fund is also subject to the following fundamental policies, which may only
be changed with stockholder approval. The Fund may not:
1. Issue any senior securities except as permitted under the 1940 Act.
2. Invest in the securities of companies conducting their principal
business activity in the same industry if, immediately after such
investment, the value of its investments in such industry would exceed
25% of the value of its total assets; provided that this limitation
will not apply to Real Estate Related Companies.
3. Participate on a joint or a joint and several basis in any trading
account in securities, except that the Fund may, to the extent
permitted by rules, regulations or orders of the Securities and
Exchange Commission, combine orders with others for the purchases and
sales of securities in order to achieve the best overall execution.
4. Purchase or sell interests in oil, gas or other mineral exploration or
development programs.
5. Purchase or sell real estate, except that the Fund may purchase or
sell interests in REITs and securities secured by real estate or
interests therein issued by companies owning real estate or interests
therein.
6. Purchase or sell commodities or commodity contracts.
7. Make loans other than through the purchase of debt securities in
private placements and the loaning of portfolio securities.
8. Borrow money in an amount exceeding the maximum permitted under the
1940 Act.
9. Underwrite securities of other issuers, except insofar as it may be
deemed to be an underwriter in selling a portfolio security which may
require registration under the Securities Act of 1933, as amended (the
"Securities Act").
10. Invest more than 30% of the value of its total assets in securities
which have been acquired through private placements.
11. Purchase or retain the securities of any issuer, if, to the Fund's
knowledge, those officers and directors of the Fund or its investment
advisers who individually own beneficially more than 1/2 of 1% of the
outstanding securities of such issuer, together own beneficially more
than 5% of such outstanding securities.
12. Pledge, mortgage or hypothecate its assets except in connection with
permitted borrowing and to the extent related to transactions in which
the Fund is authorized to engage.
Except for the Fund's investment objective, industry concentration and
fundamental investment restrictions as described in this prospectus and in the
SAI, the percentage limitations and investment policies set forth in this
prospectus can be changed by the Board without stockholder approval.
Other Investment Techniques. The Fund may engage in other types of transactions,
including, but not limited to, investment in restricted and illiquid securities,
repurchase agreements, when-issued and forward commitment transactions,
borrowing, securities lending and other transactions. For a description of such
types of transactions, see "Investment Policies and Techniques" and "Other
Investment Policies and Techniques" in the SAI.
INVESTMENT PHILOSOPHY
Common Stocks. With respect to the Fund's common stock portfolio (other than
common stocks purchased primarily for their income-producing potential), the
Advisers use an "intrinsic value" approach to selecting and managing the Fund's
assets. The Advisers define intrinsic value as the discounted value of the cash
that can be taken out of a business during its remaining life. Accordingly, in
their securities selection process, the Advisers put primary emphasis on
analysis of balance sheets, cash flows, the quality of management and its
ability to efficiently and effectively allocate capital, various internal
returns which indicate profitability, and the relationships that these factors
have to the price of a given security. The intrinsic value approach is based on
the belief that the securities of certain companies may sell at a discount from
the Advisers' estimate of such companies' "intrinsic value". The Advisers will
attempt to identify and invest in such securities, with the expectation that
such value discount will narrow over time and thus provide capital appreciation
for the Fund. When the Fund makes an investment in common stock of an issuer, it
will likely make a significant investment and typically hold such stock for a
long period of time. Over time, the Fund believes that value investing produces
superior total returns.
Fixed Income Investments. In seeking its total return objective, the Fund may
invest a portion of its assets in U.S. government securities, preferred stocks,
bonds and other income producing securities. In selecting such investments, the
Advisers consider, among other things, current yield, liquidity, price
variability and the underlying fundamental characteristics of the issuer, with
particular emphasis on debt to equity and debt coverage ratios.
PORTFOLIO CONTENTS
At any given time, the Fund has some or all of the types of investments
described below. Under normal market conditions, the Fund invests primarily in a
portfolio of common stocks and income producing securities such as stocks of
REITs and other Real Estate Related Companies, RICs and utilities, bonds and
preferred stocks.
Common Stocks. The Fund may invest all or any portion of its assets in common
stock. Common stock is defined as shares of a corporation that entitle the
holder to a pro rata share of the profits of the corporation, if any, without
preference over any other stockholder or class of stockholders, including
holders of the corporation's preferred stock and other senior equity. Common
stock usually carries with it the right to vote and frequently an exclusive
right to do so. Upon liquidation, holders of common stock also have the right to
participate in the assets of the corporation after all other claims are paid.
In selecting common stocks for investment, the Fund expects to focus primarily
on U.S.-based companies, although the Fund is permitted to invest in companies
outside the U.S. Generally, target companies have consistent high returns on
equity, while using modest amounts of debt relative to their industries. The
Fund seeks investments in businesses the Advisers understand which have fairly
predictable and improving future earnings, and most importantly, are reasonably
priced relative to the businesses' earnings and anticipated growth in earnings.
The Fund does not focus its investments in "large-cap", "mid-cap" or "small-cap"
companies since the Advisers believe it would be unwise to impose such
investment limitations.
Real Estate Related Companies and REITs. As a matter of investment policy, the
Fund is concentrated in Real Estate Related Companies, which means it must,
under normal market conditions, invest more than 25% of its total assets in such
companies. The Fund must obtain stockholder approval prior to changing this
policy. REITs are included in the definition of Real Estate Related Companies
and comprise a substantial portion of the Fund's assets. As of May 4, 2007, ___%
of the Fund's total assets were invested in REITs. REITs invest primarily in
commercial real estate or real estate-related loans. A REIT is not taxed on
income distributed to its stockholders or unit-holders if it complies with
regulatory requirements relating to its organization, ownership, assets and
income, and with a regulatory requirement that it distribute to its stockholders
or unit-holders at least 90% of its taxable income for each taxable year.
Generally, REITs can be classified as equity REITs, mortgage REITs and hybrid
REITs. Equity REITs invest the majority of their assets directly in real
property and derive their income primarily from rents and capital gains from
appreciation realized through property sales. Mortgage REITs invest the majority
of their assets in real estate mortgages and derive their income primarily from
interest payments. Hybrid REITs combine the characteristics of both equity and
mortgage REITs. By investing in REITs indirectly through the Fund, Common
Stockholders will bear not only the proportionate share of the expenses of the
Fund, but also, indirectly, similar expenses of underlying REITs. The Fund
invests in REITs primarily for income.
The Fund may be subject to certain risks associated with the direct investments
of the REITs in which it invests. REITs may be affected by changes in their
underlying properties and by defaults by borrowers or tenants. Mortgage REITs
may be affected by the quality of the credit extended. Furthermore, REITs are
dependent on specialized management skills. Some REITs may have limited
diversification and may be subject to risks inherent in financing a limited
number of properties. REITs depend generally on their ability to generate cash
flow to make distributions to stockholders or unit-holders, and may be subject
to defaults by borrowers and to self-liquidations. In addition, a REIT may be
affected by its failure to qualify for tax-free pass-through of income under the
Code or its failure to maintain exemption from registration under the 1940 Act.
Registered Investment Companies (RICs). The Fund may invest in securities issued
by RICs subject to such limitations, restrictions and conditions as imposed by
Federal law. The common stock of closed-end RICs can trade at a substantial
discount to the underlying net asset value of the RIC, and the Fund may, from
time to time, invest in common stocks issued by RICs when they are trading at
discounts or when the Advisers otherwise deem market conditions appropriate. The
Fund intends to normally invest in RICs that pay dividends. RICs that pay
regular dividends typically own interest rate sensitive securities, which tend
to increase in value when interest rates decline, and decrease in value when
interest rates increase. To the extent that the Fund invests in RICs, the Fund's
stockholders will incur expenses with respect to both the Fund and that portion
of the Fund's assets invested in other RICs. However, as common stocks of
closed-end RICs can trade at substantial discounts to their underlying net asset
values, the Advisers may deem the underlying expense of investing in a
particular RIC to have minimal impact when compared to the discount at which the
Fund may buy its shares. The net asset value and market value of common stocks
issued by RICs will fluctuate with the value of the underlying assets. The Fund
may invest in the auction market preferred stock of other closed-end funds
primarily as a means of investing the Fund's cash for the short-term in higher
yielding alternatives to repurchase agreements or government securities that
include direct obligations of the United States and obligations issued by U.S.
government agencies and instrumentalities ("Government Securities"). The Fund
will consider investing cash in these instruments, and other short-term money
market type alternatives, when the yield spread is adequately attractive over
repurchase agreements and Government Securities. The Fund generally will invest
in auction market preferred stocks that are rated AAA although it may invest in
lower rated securities from time to time.
Prior to July 31, 2006, the Fund was restricted from investing more than 10% of
its total assets in other RICs. However, effective July 31, 2006, new rules
under the 1940 Act lifted these restrictions such that the Fund may now invest
more than 10% of its total assets in other RICs with certain restrictions
including: (i) a 3% limitation on acquiring the total outstanding voting shares
of any other single RIC; (ii) voting shares of acquired RICs in accordance with
certain stockholder principles; and (iii) not acquiring shares of other RICs
with the purpose of requiring the acquired RIC to redeem greater than one
percent of that RIC's outstanding shares in a period of less than 30 days. As a
result of these changes to the 1940 Act rules, and consistent with the Fund's
investment objectives, the Fund may invest a greater percentage of its assets in
RICs subject to any restrictions or limitations imposed by Federal law.
Preferred Stocks. The Fund may invest in preferred securities, including the
preferred securities issued by RICs. Preferred securities are equity securities,
but they have many characteristics of fixed income securities, such as a fixed
dividend payment rate and/or a liquidity preference over the issuer's common
shares. However, because preferred securities are equity securities, they may be
more susceptible to risks traditionally associated with equity investments than
fixed income securities. Unlike common stock, preferred securities typically do
not have voting rights.
Fixed rate preferred stocks have fixed dividend rates. They can be perpetual,
with no mandatory redemption date, or issued with a fixed mandatory redemption
date. Certain issues of preferred stock are convertible into other equity
securities. Perpetual preferred stocks provide a fixed dividend throughout the
life of the issue, with no mandatory retirement provisions, but may be callable.
Sinking fund preferred stocks provide for the redemption of a portion of the
issue on a regularly scheduled basis with, in most cases, the entire issue being
retired at a future date. The value of fixed rate preferred stocks can be
expected to vary inversely with interest rates. Adjustable rate preferred stocks
have a variable dividend rate which is determined periodically, typically
quarterly, according to a formula based on a specified premium or discount to
the yield on particular Government Securities, typically the highest base-rate
yield of one of three Government Securities: the 90-day Treasury bill; the
10-year Treasury note; and either the 20-year or 30-year Treasury bond or other
index. The premium or discount to be added to or subtracted from this base-rate
yield is fixed at the time of issuance and cannot be changed without the
approval of the holders of the adjustable rate preferred stock. Some adjustable
rate preferred stocks have a maximum and a minimum rate and in some cases are
convertible into common stock.
Auction rate preferred stocks pay dividends that adjust based on periodic
auctions. Such preferred stocks are similar to short-term corporate money market
instruments in that an auction rate preferred stockholder has the opportunity to
sell the preferred stock at par in an auction, normally conducted at least every
49 days, through which buyers set the dividend rate in a bidding process for the
next period. The dividend rate set in the auction depends on market conditions
and the credit quality of the particular issuer. Typically, the auction rate
preferred stock's dividend rate is limited to a specified maximum percentage of
an external commercial paper index as of the auction date. Further, the terms of
the auction rate preferred stocks generally provide that they are redeemable by
the issuer at certain times or under certain conditions.
The Fund may, from time to time, invest in preferred securities that are rated,
or whose issuer's senior debt is rated, investment grade by Moody's and Standard
& Poor's ("S&P") at the time of investment, although the Fund is not limited to
investments in investment grade preferred securities. In addition, the Fund may
acquire unrated issues that the Advisers deem to be comparable in quality to
rated issues in which the Fund is authorized to invest.
Money Market Instruments. Under normal market conditions, the Fund may hold up
to 20% of its total assets in cash or money market instruments. The Fund intends
to invest in money market instruments pending investments in common stocks, to
serve as collateral in connection with certain investment techniques, and to
hold as a reserve pending the payment of dividends to investors. When the
Advisers believe that economic circumstances warrant a temporary defensive
posture, the Fund may invest without limitation in short-term money market
instruments.
Money market instruments that the Fund may acquire usually will be securities
rated in the highest short-term rating category by Moody's or S&P or the
equivalent from another major rating service, or securities of issuers that have
received such ratings with respect to other short-term debt or comparable
unrated securities. Money market instruments in which the Fund typically expects
to invest include: Government Securities (as defined below); bank obligations
(including certificates of deposit, time deposits and bankers' acceptances of
U.S. or foreign banks); commercial paper rated P-l by Moody's or A-1 by S&P and
repurchase agreements.
Repurchase Agreements. The Fund may invest temporarily, without limitation, in
repurchase agreements, which are agreements pursuant to which securities are
acquired by the Fund from a third party with the understanding that they will be
repurchased by the seller at a fixed price on an agreed date. These agreements
may be made with respect to any of the portfolio securities in which the Fund is
authorized to invest. Repurchase agreements may be characterized as loans
secured by the underlying securities. The Fund may enter into repurchase
agreements with (i) member banks of the Federal Reserve System having total
assets in excess of $500 million and (ii) securities dealers, provided that such
banks or dealers meet certain creditworthiness standards established by the
Board. The resale price reflects the purchase price plus an agreed-upon market
rate of interest which is unrelated to the coupon rate or date of maturity of
the purchased security. The collateral is marked to market daily. Such
agreements permit the Fund to keep all its assets earning interest while
retaining "overnight" flexibility in pursuit of investments of a longer term
nature.
Government Securities. The Fund may invest in Government Securities. Included
among direct obligations of the United States are treasury bills, treasury notes
and treasury bonds, which differ principally in terms of their maturities and
are supported by the full faith and credit of the U.S. government. Securities
issued by U.S. government agencies and instrumentalities include other
securities that are supported by the full faith and credit of the United States
(such as Government National Mortgage Association certificates); securities that
are supported by the right of the issuer to borrow from the U.S. Treasury (such
as securities of Federal Home Loan Banks); and securities that are supported by
the credit of the instrumentality (such as Federal National Mortgage Association
and Federal Home Loan Mortgage Corporation bonds). No assurance can be given
that the U.S. government will provide financial support in the future to U.S.
government agencies, authorities or instrumentalities that are not supported by
the full faith and credit of the United States. Securities guaranteed as to
principal and interest by the U.S. government, its agencies, authorities or
instrumentalities include (i) securities for which the payment of principal and
interest is backed by an irrevocable letter of credit issued by the U.S.
government or any of its agencies, authorities or instrumentalities; and (ii)
participations in loans made to non-U.S. governments or other entities that are
so guaranteed. The secondary market for certain of these participations is
limited and therefore may be regarded as illiquid.
Zero Coupon Securities. The Fund may invest up to 10% of its total assets in
zero coupon securities issued by the U.S. government, its agencies or
instrumentalities, as well as custodial receipts or certificates underwritten by
securities dealers or banks that evidence ownership of future interest payments,
principal payments or both on certain government securities. Zero coupon
securities pay no cash income to their holders until they mature and are issued
at substantial discounts from their value at maturity. When held to maturity,
their entire return comes from the difference between their purchase price and
their maturity value. Because interest on zero coupon securities is not paid on
a current basis, the values of securities of this type are subject to greater
fluctuations than are the values of securities that distribute income regularly
and may be more speculative than such securities. Accordingly, the values of
these securities may be highly volatile as interest rates rise or fall. In
addition, the Fund's investments in zero coupon securities will result in
special tax consequences. Although zero coupon securities do not make interest
payments, for tax purposes a portion of the difference between a zero coupon
security's maturity value and its purchase price is taxable income of the Fund
each year.
Custodial receipts evidencing specific coupon or principal payments have the
same general attributes as zero coupon Government Securities but are not
considered to be Government Securities. Although typically under the terms of a
custodial receipt the Fund is authorized to assert its rights directly against
the issuer of the underlying obligation, the Fund may be required to assert
through the custodian bank such rights as may exist against the underlying
issuer. Thus, in the event the underlying issuer fails to pay principal and/or
interest when due, the Fund may be subject to delays, expenses and risks that
are greater than those that would have been involved if the Fund had purchased a
direct obligation of the issuer. In addition, in the event that the trust or
custodial account in which the underlying security has been deposited is
determined to be an association taxable as a corporation, instead of a
non-taxable entity, the yield on the underlying security would be reduced in
respect of any taxes paid.
Lending Of Securities. The Fund is authorized to lend securities it holds to
brokers, dealers and other financial organizations. Loans of the Fund's
securities, if and when made, may not exceed 33-1/3% of the Fund's total assets.
The Fund's loans of securities will be collateralized by cash, letters of credit
or Government Securities that will be maintained at all times in a segregated
account with the Fund's custodian in an amount at least equal to the current
market value of the loaned securities.
By lending its portfolio securities, the Fund can increase its income by
continuing to receive interest on the loaned securities, by investing the cash
collateral in short-term instruments or by obtaining yield in the form of
interest paid by the borrower when Government Securities are used as collateral.
The risk in lending portfolio securities, as with other extensions of credit,
consists of the possible delay in recovery of the securities or the possible
loss of rights in the collateral should the borrower fail financially. The Fund
will adhere to the following conditions whenever it lends its securities: (i)
the Fund must receive at least 100% cash collateral or equivalent securities
from the borrower, which will be maintained by daily marking-to-market; (ii) the
borrower must increase the collateral whenever the market value of the
securities loaned rises above the level of the collateral; (iii) the Fund must
be able to terminate the loan at any time; (iv) the Fund must receive reasonable
interest on the loan, as well as any dividends, interest or other distributions
on the loaned securities and any increase in market value; (v) the Fund may pay
reasonable fees approved by its board of directors, including, for example, fees
to (a) the custodian in connection with support of the lending activities, (b)
the loan or placing broker for arranging the securities loan, and/or (iii) the
borrower for participating in the loan transaction; and (c) voting rights on the
loaned securities may pass to the borrower, except that, if a material event
adversely affecting the investment in the loaned securities occurs, the Board
must terminate the loan and regain the Fund's right to vote the securities.
Portfolio Turnover. Although the Advisers are not restricted with respect to
portfolio turnover, it is not the Fund's policy to engage in transactions with
the objective of seeking profits from short-term trading. It is expected that
the annual portfolio turnover rate of the Fund will be less than 50% excluding
securities having a maturity of one year or less. Because it is difficult to
accurately predict portfolio turnover rates, actual turnover may be higher or
lower. Higher portfolio turnover results in increased Fund expenses, including
brokerage commissions, dealer mark-ups and other transaction costs on the sale
of securities and on the reinvestment in other securities. For the fiscal years
ended November 30, 2005 and November 30, 2006, the Fund's portfolio turnover
rates were ____% and __%, respectively. The Fund may also invest in RICs which
also may not be limited in their portfolio trading activity. Higher turnover
rates generally result in correspondingly greater brokerage commissions and
other transactional expenses which may be borne by the Fund, directly or through
its investment in RICs. Higher turnover rates also may be more likely to
generate capital gains that must be distributed to Fund stockholders, either as
a result of the Fund's receipt of capital gains from RIC transactions or from
the Fund's trading in RICs or other investments
RISK FACTORS
Following is a summary of some of the matters that a stockholder or prospective
stockholder should consider before investing in the Fund through the Offering.
It is not intended to be a complete review of every risk that stockholders face
when investing in Shares:
Non-Diversified Status Risk. The Fund is classified as "non-diversified" under
the 1940 Act. As a result, it can invest a greater portion of its assets in
obligations of a single issuer than a "diversified" fund. The Fund will
therefore be more susceptible than a diversified fund to being adversely
affected by any single corporate, economic, political or regulatory occurrence.
The Fund intends to diversify its investments to the extent necessary to
qualify, and maintain its status, as a regulated investment company under U.S.
federal income tax laws. See "Federal Income Tax Matters".
Investments in Common Stocks. The Fund intends to invest, under normal market
conditions, at least 80% of its total assets in publicly traded common stocks.
Common stocks generally have greater risk exposure and reward potential over
time than bonds. The volatility of common stock prices has historically been
greater than bonds, and as the Fund invests primarily in common stocks, the
Fund's net asset value may also be volatile. Further, because the time horizon
for the Fund's investments in common stock is longer, the time necessary for the
Fund to achieve its objective of total return will likely be longer than for a
fund that invests solely for income.
Concentration Risk. The Fund intends to concentrate its common stock investments
in a few issuers and to take large positions in those issuers, consistent with
being a "non-diversified" fund. As a result, the Fund may be subject to a
greater risk of loss than a diversified fund or a fund that has diversified its
investments more broadly. Taking larger positions is also likely to increase the
volatility of the Fund's net asset value, reflecting fluctuation in the value of
large Fund holdings.
Investment in Berkshire Hathaway. The Fund presently has invested a significant
percentage of its portfolio in Berkshire Hathaway, Inc. (NYSE: BRK)
("Berkshire"). As of May 4, 2007, the Fund held 750 Berkshire Class A shares,
representing 32.90% of the Fund's total assets. The Advisers do not currently
intend to liquidate any portion of the Fund's position in Berkshire. Although
not an insurance company itself, Berkshire owns Geico Insurance, General Re
Insurance and other insurance companies, and therefore derives a significant
portion of its income, and its value, from insurance companies. The insurance
business can be significantly affected by interest rates as well as price
competition within the industry. In addition, an insurance company may
experience significant changes in its year to year operating performance based
both on claims paid and on performance of invested assets. Insurance companies
can also be affected by government regulations and tax laws, which may change
from time to time. A significant decline in the market price of Berkshire or any
other company in which the Fund has made a significant common stock investment
(i) would result in a significant decline in the Fund's net asset value; (ii)
may result in a proportionate decline in the market price of the Shares; and
(iii) may result in greater risk and market fluctuation than a fund that has a
more diversified portfolio.
Investments in Real Estate Related Companies. The Fund has adopted a
concentration policy pursuant to which it must, under normal market conditions,
invest more than 25% of its total assets in Real Estate Related Companies. The
Fund must obtain stockholder approval prior to changing this policy, thus
limiting its flexibility to liquidate such companies in the future should market
conditions warrant. Since the Fund will concentrate its assets in the real
estate industry, the Fund's performance will be generally linked to performance
of the real estate markets. Property values may fall due to increasing vacancies
or declining rents resulting from economic, legal, cultural or technological
developments. REIT and other Real Estate Related Company prices also may drop
because of the failure of borrowers to pay their loans and poor management. Many
REITs utilize leverage, which increases investment risk and could adversely
affect a REIT's operations and market value in periods of rising interest rates,
as well as risks normally associated with debt financing. In addition, there are
risks associated with particular sectors of real estate investments (e.g.,
retail, office, hotel, healthcare and multifamily properties), although the Fund
does not intend to focus on any particular sector of real estate investments.
Leveraging Risk. The Fund is currently leveraged with the AMPS. Use of leverage
may have a number of adverse effects on the Fund and its stockholders including:
(i) leverage may magnify market fluctuations in the Fund's underlying holdings
thus causing a disproportionate change in the Fund's net asset value; (ii) the
Fund's cost of leverage may exceed the return on the underlying securities
acquired with the proceeds of the leverage, thereby diminishing rather than
enhancing the return to stockholders and generally making the Fund's total
return to such stockholders more volatile; (iii) the Fund may be required to
sell investments in order to meet dividend or interest payments on the debt or
preferred stock it has issued when it may be disadvantageous to do so; (iv)
leveraging through the issuance of preferred stock requires that the holders of
the preferred stock have class voting rights on various matters that could make
it more difficult for Common Stockholders to change the investment objective or
fundamental policies of the Fund, to convert it to an open-end fund or make
certain other changes; and (v) the Fund may be forced to redeem some or all of
the AMPS at inopportune times due to a decline in market value of Fund
investments. Because the fees paid to the Advisers and FAS will be calculated on
the basis of the Fund's managed assets, the fees will be higher when leverage
(including the AMPS) is utilized, giving the Advisers an incentive to utilize
leverage.
Managed Distribution Policy. In May 2006, the Fund adopted the Distribution
Policy discussed above, pursuant to which Common Stockholders would receive a
consistent, but not assured, periodic cash payment. Presently, under the
Distribution Policy, the Fund makes regular distributions at the rate of $0.115
per Share per month, or $1.38 annually, subject to the Board's right to suspend,
modify or terminate the Distribution Policy at any time. There are certain risks
and negative impacts associated with the Distribution Policy:
- In certain circumstances where the Fund utilizes its capital loss
carry-forwards to offset realized capital gains and pays out a
distribution, there will likely be a negative tax impact on Common
Stockholders.
- The Distribution Policy may impact the way in which the Fund is
managed. For example, the Fund may carry a higher balance of cash so
that it is able to fulfill the distribution payments. Also, the
Advisers may sell investments they would not otherwise sell in order
to make payments under the Distribution Policy.
- The Distribution Policy is subject to modification, suspension or
termination at any time by the Board. Suspension or termination of the
Distribution Policy may be required if the Fund has exhausted its
capital loss carry-forwards and has not been successful in obtaining
exemptive relief from Section 19(b) and Rule 19b-1 of the 1940 Act.
Presently the Fund has applied for such exemptive relief. It is not
possible predict when or if such exemptive relief might be forthcoming
or when the Fund's capital loss carry-forwards will be exhausted.
- A suspension or termination of the Distribution Policy could have the
effect of abruptly creating a trading discount (if the Fund is trading
at or above NAV) or widening an existing trading discount.
- If the Fund's annual total return is less than the annual
distribution, the Distribution Policy could have the effect of
shrinking the assets of the Fund and thus increasing the Fund's
expense ratio (i.e., the Fund's fixed expenses will be spread over a
smaller pool of assets).
- A distribution which contains a return of capital, which the Fund
expects will be the case, will require Common Stockholders to adjust
their cost basis by the amount of return of capital so that when they
sell their Shares, their cost basis will be lower. This will add to
the record keeping requirements of Common Stockholders.
- The Fund may have a position in a stock with an unrealized capital
gain which it may have no intention of selling, but through a tender
or merger, may be forced unexpectedly to realize the capital gain.
Realizing any such capital gains may accelerate the exhaustion of the
Fund's capital loss carry-forwards, which may cause suspension or
termination of the Distribution Policy.
Discount From Net Asset Value. The common stock of closed-end funds frequently
trades at a market price that is less than the value of the net assets
attributable to those shares (a "discount"). The possibility that the Shares
will trade at a discount from net asset value is a risk separate and distinct
from the risk that the Fund's net asset value will decrease. The risk of
purchasing shares of a closed-end fund that might trade at a discount or
unsustainable premium is more pronounced for investors who wish to sell their
shares in a relatively short period of time because, for those investors,
realization of a gain or loss on their investments is likely to be more
dependent upon the existence of a premium or discount than upon portfolio
performance.
Size of the Fund. As of May 4, 2007, the Fund had total net assets of
approximately $129.73 million, including $25 million in AMPS leverage. As a fund
with a relatively small asset base, the Fund may be subject to certain
operational inefficiencies including: higher expense ratio, less coverage by
analysts and the marketplace in general which can contribute to a less active
trading market for the Shares and consequently a wider discount, more limited
ability to attract new investors and/or take advantage of investment
opportunities and less ability to take advantage of lower transaction costs
available to larger investors.
Repurchase of the Shares. The Fund is authorized to repurchase Shares on the
open market when the Shares are trading at a discount from net asset value as
determined by the Board from time to time. The acquisition of Shares by the Fund
will decrease the total assets of the Fund and, therefore, have the effect of
increasing the Fund's expense ratio and may adversely affect the ability of the
Fund to achieve its investment objectives. Furthermore, the acquisition of
Shares by the Fund may require the Fund to redeem the AMPS in order to maintain
certain asset coverage requirements. To the extent the Fund may need to
liquidate investments to fund the repurchase of Shares, this may result in
portfolio turnover which will result in additional expenses being borne by the
Fund.
Dependence on Key Personnel. The Advisers are dependent upon the expertise of
Stewart Horejsi in providing advisory services with respect to the Fund's
investments. If the Advisers were to lose the services of Mr. Horejsi, their
ability to service the Fund could be adversely affected. There can be no
assurance that a suitable replacement could be found for Mr. Horejsi in the
event of his death, resignation, retirement or inability to act on behalf of the
Advisers.
Issuer Risk. The value of the Fund's portfolio may decline for a number of
reasons which directly relate to the issuers of the securities in the portfolio,
such as management performance, financial leverage and reduced demand for an
issuer's goods and services.
Inflation Risk. Inflation risk is the risk that the value of assets or income
from investments will be worth less in the future as inflation decreases the
value of money. As inflation increases, the real value of the Fund's portfolio
can decline.
Repurchase Agreements. The use of repurchase agreements involves certain risks.
For example, if the seller of securities under a repurchase agreement defaults
on its obligation to repurchase the underlying securities, as a result of
bankruptcy or otherwise, the Fund will seek to dispose of such securities, which
action could involve costs or delays. If the seller becomes insolvent and
subject to liquidation or reorganization under applicable bankruptcy or other
laws, the Fund's ability to dispose of the underlying securities may be
restricted. Finally, it is possible that the Fund may not be able to
substantiate its interest in the underlying securities.
Foreign Securities Risk. The Fund is permitted to invest in foreign securities
without limitation. Investment in non-U.S. issuers may involve unique risks
compared to investing in securities of U.S. issuers. These risks are more
pronounced to the extent that the Fund invests a significant portion of its
non-U.S. investments in one region or in the securities of emerging market
issuers. These risks may include:
- Less information about non-U.S. issuers or markets may be available
due to less rigorous disclosure, accounting standards or regulatory
practices.
- Many non-U.S. markets are smaller, less liquid and more volatile. In a
changing market, the Advisers may not be able to sell the Fund's
portfolio securities at times, in amounts and at prices they consider
reasonable.
- Currency exchange rates or controls may adversely affect the value of
the Fund's investments.
- The economies of non-U.S. countries may grow at slower rates than
expected or may experience downturns or recessions.
- Withholdings and other non-U.S. taxes may decrease the Fund's return.
Currency Risk. The Fund currently holds investments in foreign securities and
thus a portion of the Fund's assets may be quoted or denominated in non-U.S.
currencies. These securities may be adversely affected by fluctuations in
relative currency exchange rates and by exchange control regulations. The Fund's
investment performance may be negatively affected by a devaluation of a currency
in which the Fund's investments are quoted or denominated. Further, the Fund's
investment performance may be significantly affected, either positively or
negatively, by currency exchange rates because the U.S. dollar value of
securities quoted or denominated in another currency will increase or decrease
in response to changes in the value of such currency in relation to the U.S.
dollar. The Fund does not currently hedge against the potential decline in value
of foreign currencies against the U.S. dollar and does not foresee hedging
currency risk in the future, though it is not precluded from doing so.
Sovereign Debt Risk. An investment in debt obligations of non-U.S. governments
and their political subdivisions ("sovereign debt") involves special risks that
are not present in corporate debt obligations. The non-U.S. issuer of the
sovereign debt or the non-U.S. governmental authorities that control the
repayment of the debt may be unable or unwilling to repay principal or interest
when due, and the Fund may have limited recourse in the event of a default.
During periods of economic uncertainty, the market prices of sovereign debt may
be more volatile than prices of debt obligations of U.S. issuers. In the past,
certain non-U.S. countries have encountered difficulties in servicing their debt
obligations, withheld payments of principal and interest and declared moratoria
on the payment of principal and interest on their sovereign debt.
Liquidity Risk. Although the Fund invests primarily in securities traded on
national exchanges, it may invest in less liquid assets from time to time that
are not readily marketable and may be subject to restrictions on resale.
Illiquid securities may be more difficult to value or may impair the Fund's
ability to realize the full value of its assets in the event of a voluntary or
involuntary liquidation of such assets and thus may cause a decline in the
Fund's net asset value. The Fund has no limitation on the amount of its assets
that may be invested in securities which are not readily marketable or are
subject to restrictions on resale, although it may not invest more than 30% of
the value of its total assets in securities which have been acquired through
private placement. In certain situations, the Fund could find it more difficult
to sell such securities at times, in amounts and at prices they consider
reasonable.
Market Disruption Risk. The terrorist attacks in the United States on September
11, 2001 had a disruptive effect on the securities markets. The Fund cannot
predict the effects of similar events in the future on the U.S. economy. These
terrorist attacks and related events, including the war in Iraq, its aftermath,
and continuing occupation of Iraq by coalition forces, have led to increased
short-term market volatility and may have long-term effects on U.S. and world
economies and markets. A similar disruption of the financial markets could
impact interest rates, auctions, secondary trading, ratings, credit risk,
inflation and other factors relating to the Common Stock and AMPS.
Anti-Takeover Provisions Risk. The Charter and Bylaws include provisions that
could limit the ability of other entities or persons to acquire control of the
Fund or to change the composition of its Board. Such provisions could limit the
ability of Common Stockholders to sell their Shares at a premium over prevailing
market prices by discouraging a third party from seeking to obtain control of
the Fund. These provisions include advance notice requirements for stockholder
proposals and super-majority voting requirements for certain transactions with
affiliates, open-ending the Fund or a merger, liquidation, asset sale or similar
transaction.
Investments in RICs. The Fund may invest in securities issued by other
closed-end funds (or RICs) subject to such limitations, restrictions and
conditions as imposed by Federal law. Accordingly, the Fund will be subject to
the particular risks associated with investing in other closed-end funds that
are separate from risks associated with the underlying investments held such
RICs. Both the Fund and any RICs in which it invests have management fees. In
addition, the RICs in which the Fund invests will typically incur other
operating expenses that are borne by their investors, including the Fund. As a
result, Fund stockholders will bear not only the Fund's management fees and
operating expenses, but also the fees and expenses of the RICs in which the Fund
invests. Investors would bear less expense if they invested directly in the
underlying RICs in which the Fund invests. The Fund may also invest in RICs that
are not limited in their portfolio trading activity and thus may experience high
portfolio turnover rates. Higher turnover rates generally result in
correspondingly greater brokerage commissions and other transactional expenses
which may be borne by the Fund, directly or through its investment in RICs.
Higher turnover rates also may be more likely to generate capital gains that
must be distributed to Fund stockholders, either as a result of the Fund's
receipt of capital gains from RIC transactions or from the Fund's trading in
RICs or other investments.
THE OFFERING
Terms of the Offering. The Fund is issuing to Record Date Stockholders (i.e.,
stockholders who hold Shares on the Record Date) Rights to subscribe for Shares.
Each Record Date Stockholder is being issued one transferable Right for every
one Share owned on the Record Date. The Rights entitle a Record Date Stockholder
to acquire one Share at the Subscription Price for each one Right held.
Fractional Shares will not be issued upon the exercise of the Rights.
Accordingly, the number of Rights to be issued to a Record Date Stockholder on
the Record Date will be rounded down to the nearest whole number of Rights in
cases where Common Stockholders own fractional Shares. Rights may be exercised
at any time during the Subscription Period which commences on June 20, 2007 and
ends at 5:00 p.m., New York City time, on July 11, 2007, unless extended by the
Fund to a date not later than July 21, 2007, at 5:00 p.m., New York City time.
See "Expiration of the Offering." The Right to acquire one additional Share for
every one Right held during the Subscription Period at the Subscription Price is
hereinafter referred to as the "Primary Subscription."
In addition to the Primary Subscription, Record Date Stockholders and Rights
Purchasers who exercise all or a portion of their Rights are entitled to
subscribe for Shares which were not otherwise subscribed for by others in the
Primary Subscription (the "Over-Subscription Privilege"). If sufficient Shares
are not available to honor all requests under the Over-Subscription Privilege,
the Fund may, in its discretion, issue additional Shares up to 100% of the
Shares available in the Offering to honor over-subscription requests, with such
additional Shares subject to the same terms and conditions of this Offering. For
purposes of determining the maximum number of Shares a Common Stockholder may
acquire pursuant to the Offering, broker-dealers whose Shares are held of record
by any Nominee will be deemed to be the holders of the Rights that are issued to
such Nominee on their behalf. The term "Nominee" shall mean, collectively, CEDE
& Company ("Cede"), as nominee for the Depository Trust Company ("DTC"), or any
other depository or nominee. Shares acquired pursuant to the Over-Subscription
Privilege are subject to allotment, which is more fully discussed below under
"Over-Subscription Privilege."
The Horejsi Affiliates have indicated that they will fully subscribe in the
Primary Subscription on the same terms as other Common Stockholders. The Horejsi
Affiliates do not expect to subscribe in the Over-Subscription Privilege.
However, if the Horejsi Affiliates fully exercise their Rights in the Primary
Subscription and the Over-Subscription Privilege, under certain circumstances
(e.g., low participation by Common Stockholders in the Offering), the Horejsi
Affiliates could substantially increase their percentage ownership of the Fund
at an advantageous price. The Horejsi Affiliates are subject to certain
limitations on selling Shares in the Fund. Any Shares acquired in the Offering
by the Horejsi Affiliates as "affiliates" of the Fund as that term is defined
under the Securities Act, may only be sold in accordance with Rule 144 under the
Securities Act or another applicable exemption or pursuant to an effective
registration statement under the Securities Act. In general, under Rule 144, as
currently in effect, an "affiliate" of the Fund is entitled to sell, during a 90
day period, a number of Shares that does not exceed the greater of 1% of the
then outstanding Shares or the average weekly reported trading volume of the
Common Stock during the four calendar weeks preceding such sale. Sales under
Rule 144 are also subject to certain restrictions on the manner of sale, to
notice requirements, and to the availability of current public information about
the Fund. In addition, any profit resulting from the sale of Shares acquired by
the Horejsi Affiliates pursuant to the Over-Subscription Privilege, if the
Shares are held for a period of less than six months, must be returned to the
Fund pursuant to Section 16 of the Exchange Act.
Rights will be evidenced by Subscription Certificates. The number of Rights
issued to each holder of Shares will be stated on the Subscription Certificates
delivered to the holder. The method by which Rights may be exercised and Shares
paid for is set forth below in "Method of Exercising Rights" and "Payment for
Shares." A RIGHTS HOLDER WILL HAVE NO RIGHT TO RESCIND A PURCHASE AFTER THE
SUBSCRIPTION AGENT HAS RECEIVED PAYMENT OR NOTICE OF GUARANTEED DELIVERY. See
"Payment for Shares" below. Shares issued pursuant to an exercise of Rights will
be listed on the NYSE.
The Rights are transferable until the Expiration Date and have been admitted for
trading on the NYSE. Assuming a market exists for the Rights, the Rights may be
purchased and sold through usual brokerage channels and sold through the
Subscription Agent. Although no assurance can be given that a market for the
Rights will develop, trading in the Rights on the NYSE will begin on a
"when-issued" basis beginning on the Record Date and may be conducted until the
close of trading on the last NYSE trading day prior to the Expiration Date.
Trading of the Rights on the NYSE will be conducted on a when issued basis until
and including the date on which the Subscription Certificates are mailed to
Record Date Stockholders and thereafter will be conducted on a regular way basis
until and including the last Exchange trading day prior to the Expiration Date.
The method by which Rights may be transferred is set forth below in "Method of
Transferring Rights." The underlying Shares will also be admitted for trading on
the NYSE and will begin trading ex-Rights two Business Days prior to the Record
Date.
Purpose of the Offering. At a meeting held on April 27, 2007, the Board approved
the Offering and determined that it would be in the best interests of the Fund
and its existing stockholders to increase the assets of the Fund. The primary
reasons include:
- The Primary Subscription will provide existing Common Stockholders an
opportunity to purchase additional Shares at a price that is
potentially below market value without incurring any commission or
transaction charges.
- Raising more cash will better position the Fund to take advantage of
investment opportunities that may arise.
- Increasing the Fund's assets will provide the Fund flexibility in
maintaining the Distribution Policy. This policy permits Common
Stockholders to realize a predictable, but not assured, level of cash
flow and some liquidity periodically with respect to their Common
Stock without having to sell Shares.
- Increasing Fund assets may lower the Fund's expenses as a proportion
of net assets because the Fund's fixed costs would be spread over a
larger asset base. There can be no assurance that by increasing the
size of the Fund, the Fund's expense ratio will be lowered.
- Since the Offering will increase the Fund's outstanding Shares, it
will likely increase the number of beneficial owners of the Shares,
which could increase the level of market interest in and visibility of
the Fund and improve the trading liquidity of the Shares on the NYSE.
- The distribution of the Rights, which themselves are expected to have
intrinsic value, provides non-participating stockholders the
possibility of receiving a cash payment upon the sale of their Rights
- Increasing the Fund's total assets will reduce the Fund's leverage as
a percentage of assets from ____% to approximately ____% (assuming the
Offering is fully subscribed). The Fund is currently leveraged with
$25 million of the AMPS and the Fund intends to maintain this amount
of leverage. Because leveraging increases risk, the additional assets
from the Offering will mitigate risks commonly associated with
leverage.
- The increase in assets will result in the Fund exceeding the
asset-coverage ratio requirements under its Articles Supplementary by
a wider margin, thus giving the Fund greater flexibility to buy and
hold investments without violating those requirements.
Board Considerations in Approving the Offering. At a meeting on April 27, 2007,
the Board determined that it would be in the best interests of the Fund and its
stockholders to continue to increase the assets of the Fund available for
current and future investment opportunities. In addition, the Offering seeks to
reward the long-term stockholder by giving existing Stockholders Rights to
purchase additional Shares at a below market price. Increasing the size of the
Fund also might result in lowering the Fund's expenses as a percentage of
average net assets applicable to Common Stockholders. The Advisers anticipate
that it may take up to six months for the Fund to invest these proceeds in
accordance with its investment objective and policies under current market
conditions.
The Board voted unanimously to approve the terms of the Offering. Two of the
Fund's Directors who voted to authorize the Offering are affiliated with the
Advisers and, therefore, could benefit indirectly from the Offering. The other
three directors are not "interested persons" of the Fund within the meaning of
the 1940 Act. The Advisers may also benefit from the Offering because its fee is
based on the net assets of the Fund. It is not possible to state precisely the
amount of additional compensation the Advisers might receive as a result of the
Offering because it is not known how many Shares will be subscribed for and
because the proceeds of the Offering will be invested in additional portfolio
securities, which will fluctuate in value.
The Fund may, in the future, choose to make additional rights offerings from
time to time for a number of Shares and on terms that may or may not be similar
to this Offering. Any such future rights offerings will be made in accordance
with the then applicable requirements of the 1940 Act and the Securities Act.
There can be no assurance that the Fund or its stockholders will achieve any of
the foregoing objectives or benefits through the Offering.
The Subscription Price. The Subscription Price for the Shares to be issued under
the Offering will be equal to the greater of (a) the NAV per Share on the
Expiration Date or (b) 80% of the volume-weighted average sales price per Share
on the NYSE on the Expiration Date and the four immediately preceding trading
days (clause (b) being the "Average Closing Price"). The "volume-weighted
average sales price" takes into consideration the volume and sale price of each
and every sale of the Shares during a 5-day trading period. For example, if the
Offering were held using a pricing date/Expiration Date of May 4, 2007, at which
time the NAV was $9.20, the market price on such date was $12.73, and the
Average Closing Price for the week was $12.47, then the Subscription Price would
be $9.98 per Share.
Over-Subscription Privilege. If all of the Rights initially issued are not
exercised, any Shares for which subscriptions have not been received will be
offered, by means of the Over-Subscription Privilege, to both Record Date
Stockholders and Rights Purchasers who have exercised all or a portion of the
Rights initially issued to or purchased by them and who wish to acquire more
than the number of Shares for which the Rights held by them are exercisable.
Record Date Stockholders and Rights Purchasers who exercise all or a portion of
their Rights will have the opportunity to indicate on the Subscription
Certificate how many unsubscribed Shares they are willing to acquire pursuant to
the Over-Subscription Privilege.
If enough unsubscribed Shares remain after the Primary Subscriptions have been
exercised, all over-subscription requests will be honored in full. If there are
not enough unsubscribed Shares to honor all over-subscription requests, the Fund
may, in its discretion, issue additional Shares up to 100% of Shares available
in the Offering to honor over-requests (defined above as the "Over-Allotment
Shares"), with such Shares subject to the same terms and conditions of this
Offering. The method by which any unsubscribed Shares or Over-Allotment Shares
(collectively, the " Excess Shares") will be distributed and allocated pursuant
to the Over-Subscription Privilege is as follows:
1. Shares will be available for purchase pursuant to the
Over-Subscription Privilege only if (i) the maximum number of Shares
is not subscribed for through the exercise of the Primary Subscription
by the Expiration Date and/or (ii) the Fund has issued Over-Allotment
Shares.
2. If there are not enough Excess Shares to fully satisfy all
over-subscription requests (i.e., by both Record Date Stockholders and
Rights Purchasers) pursuant to the Over-Subscription Privilege, the
Excess Shares will be allocated first to Record Date Stockholders who
have exercised all or a portion of their Rights in accordance with
their over-subscription request.
3. If there are not enough Excess Shares to fully satisfy all
over-subscription requests by Record Date Stockholders pursuant to
paragraph (2) above, the Excess Shares will be allocated among Record
Date Stockholders who have exercised all or a portion of their Rights
in proportion, not to the number of Shares requested pursuant to the
Over-Subscription Privilege, but to the number of Rights exercised by
them; provided, however, that if this pro-rata allocation results in
any Record Date Stockholder being allocated a greater number of Excess
Shares than such Record Date Stockholder over-subscribed for pursuant
to the exercise of the Over-Subscription Privilege, then such Record
Date Stockholder will be allocated only such number of Excess Shares
as such holder over-subscribed for and the remaining Excess Shares
will be allocated among all other Record Date Stockholders exercising
Over-Subscription Privileges, but in any event not to exceed 100% of
the Shares available in the Offering. The formula to be used in
allocating the Excess Shares under this paragraph is as follows:
Rights Exercised by Record Date Stockholder x Excess Shares Remaining
-----------------------------------------------
Total Rights Exercised by all Over-Subscribing
Record Date Stockholders
4. Any Excess Shares remaining after satisfying all over-subscription
requests by Record Date Stockholders pursuant to paragraphs (2) and
(3) above will be allocated among Rights Purchasers in proportion, not
to the number of Shares requested pursuant to the Over-Subscription
Privilege, but to the number of Rights exercised by them; provided,
however, that if this pro-rata allocation results in any Rights
Purchaser being allocated a greater number of Excess Shares than such
Rights Purchaser over-subscribed for pursuant to the exercise of the
Over-Subscription Privilege, then such Rights Purchaser will be
allocated only such number of Excess Shares as such purchaser
over-subscribed for and the remaining Excess Shares will be allocated
among all other Rights Purchasers exercising Over-Subscription
Privileges, but in any event not to exceed 100% of the Shares
available in the Offering. The formula to be used in allocating the
Excess Shares under this paragraph is as follows:
Rights Exercised by Rights Purchaser x Excess Shares Remaining
-------------------------------------
Total Rights Exercised by all Over-
Subscribing Rights Purchasers
5. The percentage of Excess Shares each over-subscriber may acquire will
be rounded down to result in delivery of whole Shares (fractional
Shares will not be issued).
The forgoing allocation process may involve a series of allocations in order to
assure that the total number of Shares available for over-subscriptions is
distributed on a pro rata basis. The Fund will not offer or sell any Shares
which are not subscribed for under the Primary Subscription or the
Over-Subscription Privilege.
Expiration of the Offering. The Offering will expire at 5:00 p.m., New York City
time, on the Expiration Date (July 11, 2007), unless extended by the Fund to a
date not later than July 21, 2007, 5:00 p.m., New York City time (the "Extended
Expiration Date"). Rights will expire on the Expiration Date (or Extended
Expiration Date as the case may be) and thereafter may not be exercised.
Sales by Subscription Agent. Holders of Rights who do not wish to exercise any
or all of their Rights may instruct the Subscription Agent to sell any
unexercised Rights. The Subscription Certificates representing the Rights to be
sold by the Subscription Agent must be received on or before the Expiration
Date. Upon the timely receipt of appropriate instructions to sell Rights, the
Subscription Agent will use its best efforts to complete the sale and will remit
the proceeds of sale, net of commissions, if any, to the holders. If the Rights
can be sold, sales of the Rights will be deemed to have been effected at the
weighted average sales price received by the Subscription Agent on the day such
Rights are sold. The selling Rights holder will pay all brokerage commissions
incurred by the Subscription Agent on a pro rata basis with other selling Rights
holders. These sales may be conducted by the Subscription Agent through
independent registered broker-dealers. The Subscription Agent will attempt to
sell all Rights that remain unclaimed as a result of Subscription Certificates
being returned by the postal authorities as undeliverable as of the fourth
Business Day prior to the Expiration Date. These sales will be made net of
commissions on behalf of the non-claiming stockholders. Proceeds from those
sales will be held by Eastern Bank for the account of the non-claiming
stockholder until the proceeds are either claimed or escheat. There can be no
assurance that the Subscription Agent will be able to complete the sale of any
of these Rights and neither the Fund nor the Subscription Agent has guaranteed
any minimum sales price for the Rights. All of these Rights will be sold at the
market price, if any, on the NYSE.
Method of Transferring Rights. The Rights evidenced by a single Subscription
Certificate may be transferred in whole by endorsing the Subscription
Certificate for transfer in accordance with the accompanying instructions. A
portion of the Rights evidenced by a single Subscription Certificate (but not
fractional Rights) may be transferred by delivering to the Subscription Agent a
Subscription Certificate properly endorsed for transfer, with instructions to
register the portion of the Rights evidenced thereby in the name of the
transferee (and to issue a new Subscription Certificate to the transferee
evidencing the transferred Rights). In this event, a new Subscription
Certificate evidencing the balance of the Rights will be issued to the Rights
holder or, if the Rights holder so instructs, to an additional transferee.
Holders wishing to transfer all or a portion of their Rights (but not fractional
Rights) should allow at least three Business Days prior to the Expiration Date
for (i) the transfer instructions to be received and processed by the
Subscription Agent; (ii) a new Subscription Certificate to be issued and
transmitted to the transferee or transferees with respect to transferred Rights,
and to the transferor with respect to retained rights, if any; and (iii) the
Rights evidenced by the new Subscription Certificates to be exercised or sold by
the recipients thereof. Neither the Fund nor the Subscription Agent shall have
any liability to a transferee or transferor of Rights if Subscription
Certificates are not received in time, or properly completed, for exercise or
sale prior to the Expiration Date.
Except for the fees charged by the Subscription Agent (which will be paid by the
Fund as described below), all commissions, fees and other expenses (including
brokerage commissions and transfer taxes) incurred in connection with the
purchase, sale or exercise of Rights will be for the account of the transferor
of the Rights, and none of these commissions, fees or expenses will be paid by
the Fund or the Subscription Agent.
The Fund anticipates that the Rights will be eligible for transfer, and that the
exercise of the Primary Subscription and Over-Subscription Privilege, may be
effected through the facilities of DTC. Rights exercised through DTC are
referred to as "DTC Exercised Rights".
Method of Exercising Rights. Rights may be exercised by filling in and signing
the reverse side of the Subscription Certificate and mailing it in the envelope
provided, or otherwise delivering the completed and signed Subscription
Certificate to the Subscription Agent, together with payment for the Shares as
described below under "Payment for Shares." Rights may also be exercised through
a Rights holder's broker, who may charge the Rights holder a servicing fee in
connection with such exercise.
Completed Subscription Certificates must be received by the Subscription Agent
prior to 5:00 p.m., New York City time, on the third Business Day after the
Expiration Date (unless payment is effected by means of a Notice of Guaranteed
Delivery as described below under "Payment for Shares"). The Subscription
Certificate and payment should be delivered to Colbent Corporation at the
following address:
If By Mail: If By Hand: If By Overnight Courier:
----------- ----------- -----------------------
Colbent Corporation Securities Transfer & Reporting Services, Inc. Colbent Corporation
Attn: Corporate Actions c/o Colbent Corporation Attn: Corporate Actions
P.O. Box 859208 Attn: Corporate Actions 161 Bay State Road
Braintree, MA 02185-9208 100 William Street, Galleria Braintree, MA 02184
New York, New York 10038
Subscription Agent. The Subscription Agent is Colbent Corporation, Attn:
Corporate Actions, P.O. Box 859208, Braintree, MA 02185-9208. The Subscription
Agent will receive from the Fund an amount estimated to be $[_________],
comprised of the fee for its services and the reimbursement for certain expenses
related to the Offering. INQUIRIES BY ALL HOLDERS OF RIGHTS SHOULD BE DIRECTED
TO THE INFORMATION AGENT AT 1-800-965-5212; HOLDERS MAY ALSO CONSULT THEIR
BROKERS OR NOMINEES.
Payment for Shares. Payment for Shares shall be calculated by multiplying the
Estimated Subscription Price of $9.98 per Share times the sum of (i) the number
of Rights held and intended to be exercised in the Primary Subscription, plus
(ii) the number of additional Shares intended to be over-subscribed under the
Over-Subscription Privilege. For example, if a Common Stockholder receives 100
Rights and wishes to subscribe for 100 Shares in the Primary Subscription, and
also wishes to over-subscribe for 50 additional Shares under the
Over-Subscription Privilege, he would send in $9.98 x 100 ($____) plus $9.98 x
50 ($____). Holders of Rights who wish to acquire Shares in the Primary
Subscription or pursuant to the Over-Subscription Privilege may choose between
the following methods of payment:
1. If, prior to 5:00 p.m., New York City time, on the third (3rd)
Business Day after the Expiration Date, the Subscription Agent shall
have received a Notice of Guaranteed Delivery by telegram or
otherwise, from a bank or trust company or a NYSE member firm
guaranteeing delivery of (i) payment of the Estimated Subscription
Price of $9.98 per Share for the Shares subscribed for in the Primary
Subscription and any additional Shares subscribed for pursuant to the
Over-Subscription Privilege and (ii) a properly completed and executed
Subscription Certificate, the subscription will be accepted by the
Subscription Agent. The Subscription Agent will not honor a Notice of
Guaranteed Delivery unless a properly completed and executed
Subscription Certificate is received by the Subscription Agent prior
to 5:00 p.m., New York City time, on the third (3rd) Business Day
after the Expiration Date (the "Protect Period").
2. Alternatively, a Rights holder can, together with the properly
completed and executed Subscription Certificate, send payment for the
Shares acquired in the Primary Subscription and any additional Shares
subscribed for pursuant to the Over-Subscription Privilege, to the
Subscription Agent based on the Estimated Subscription Price of $9.98
per Share. To be accepted, such payment, together with the
Subscription Certificate, must be received by the Subscription Agent
prior to 5:00 p.m., New York City time, on the third (3rd) Business
Day after the Expiration Date.
If the Estimated Subscription Price is greater than the actual per Share
purchase price, the excess payment will be applied toward the purchase of Excess
Shares to the extent that there remain sufficient unsubscribed Shares available
after the Primary Subscription and Over-Subscription Privilege allocations are
completed. To the extent that sufficient Excess Shares are not available to
apply all of the excess payment toward the purchase of Excess Shares, available
Shares will be allocated in the manner consistent with that described in the
section entitled "Over-Subscription Privilege" above. Any excess payment will be
refunded to the Record Date Stockholders or Rights Purchaser, as the case may
be, participating in the Over-Subscription Privilege to the extent that
additional Shares are not available.
A PAYMENT, PURSUANT TO THE SECOND METHOD DESCRIBED ABOVE, MUST ACCOMPANY ANY
SUBSCRIPTION CERTIFICATE FOR SUCH SUBSCRIPTION CERTIFICATE TO BE ACCEPTED.
Within five (5) business days following the completion of the Protect Period, a
confirmation will be sent by the Subscription Agent to each Common Stockholder
(or, if the Shares on the Record Date are held by CEDE or any other depository
or nominee, to CEDE or such other depository or nominee). The date of the
confirmation is referred to as the "Confirmation Date." The confirmation will
show (i) the number of Shares acquired pursuant to the Primary Subscription;
(ii) the number of Shares, if any, acquired pursuant to the Over-Subscription
Privilege; (iii) the per Share and total purchase price for the Shares; and (iv)
any additional amount payable by such Common Stockholder to the Fund (e.g., if
the Estimated Subscription Price was less than the Subscription Price on the
Expiration Date) or any excess to be refunded by the Fund to such Common
Stockholder (e.g., if the Estimated Subscription Price was more than the
Subscription Price on the Expiration Date). Any additional payment required from
a Common Stockholder must be received by the Subscription Agent prior to 5:00
p.m., New York City time, on the date specified as the deadline for final
payment for Shares, and any excess payment to be refunded by the Fund to such
Common Stockholder will be mailed by the Subscription Agent within ten (10)
Business Days after the Confirmation Date. All payments by a Common Stockholder
must be made in United States Dollars by money order or by checks drawn on banks
located in the continental United States payable to Eastern Bank acting on
behalf of the Subscription Agent.
Whichever of the above two methods is used, issuance and delivery of
certificates for the Shares subscribed for are subject to collection of funds
and actual payment pursuant to any notice of guaranteed delivery.
The Subscription Agent will deposit all checks received by it prior to the final
due date into a segregated interest bearing account at Eastern Bank pending
distribution of the Shares from the Offering. All interest will accrue to the
benefit of the Fund and investors will not earn interest on payments submitted
nor will interest be credited toward the purchase of Shares.
YOU WILL HAVE NO RIGHT TO RESCIND YOUR SUBSCRIPTION AFTER THE SUBSCRIPTION AGENT
HAS RECEIVED THE SUBSCRIPTION CERTIFICATE OR NOTICE OF GUARANTEED DELIVERY.
If a holder of Rights who acquires Shares pursuant to the Primary Subscription
or the Over-Subscription Privilege does not make payment of any amounts due, the
Fund reserves the right to take any or all of the following actions: (i) find
other purchasers for such subscribed-for and unpaid-for Shares; (ii) apply any
payment actually received by it toward the purchase of the greatest whole number
of Shares which could be acquired by such holder upon exercise of the Primary
Subscription or the Over-Subscription Privilege; (iii) sell all or a portion of
the Shares actually purchased by the holder in the open market, and apply the
proceeds to the amounts owed; or (iv) exercise any and all other rights or
remedies to which it may be entitled, including, without limitation, the right
to set off against payments actually received by it with respect to such
subscribed Shares and to enforce the relevant guaranty of payment.
Holders who hold Shares for the account of others, such as brokers, trustees, or
depositaries for securities, should notify the respective beneficial owners of
the Shares as soon as possible to ascertain the beneficial owners' intentions
and to obtain instructions with respect to the Rights. If the beneficial owner
so instructs, the record holder of the Rights should complete Subscription
Certificates and submit them to the Subscription Agent with the proper payment.
In addition, beneficial owners of Common Stock or Rights held through such a
holder should contact the holder and request the holder to effect transactions
in accordance with the beneficial owner's instructions.
The instructions accompanying the Subscription Certificates should be read
carefully and followed in detail. DO NOT SEND SUBSCRIPTION CERTIFICATES TO THE
FUND OR THE ADVISERS .
The method of delivery of Subscription Certificates and payment of the
Subscription Price to the Subscription Agent will be at the election and risk of
the Rights Holders, but if sent by mail it is recommended that the certificates
and payments be sent by registered mail, properly insured, with return receipt
requested, and that a sufficient number of days be allowed to ensure delivery to
the Subscription Agent and clearance of payment prior to 5:00 p.m., New York
City time, on the Expiration Date. Because uncertified personal checks may take
at least five business days to clear, each Record Date Stockholder or Rights
Purchaser participating in the Offering is strongly urged to pay, or arrange for
payment, by means of a certified or cashier's check or money order.
All questions concerning the timeliness, validity, form and eligibility of any
exercise of Rights will be determined by the Fund, whose determinations will be
final and binding. The Fund in its sole discretion may waive any defect or
irregularity, or permit a defect or irregularity to be corrected within such
time as it may determine, or reject the purported exercise of any Right. If the
Fund elects in its sole discretion to waive any defect or irregularity, it may
do so on a case-by-case basis which means that not all defects or irregularities
may be waived, if at all, or waived in the same manner as with other defects or
irregularities. Subscriptions will not be deemed to have been received or
accepted until all irregularities have been waived or cured within such time as
the Fund determines in its sole discretion. Neither the Fund nor the
Subscription Agent will be under any duty to give notification of any defect or
irregularity in connection with the submission of Subscription Certificates or
incur any liability for failure to give such notification.
Impact of the Offering on the Managed Distribution Policy. Rights holders who
exercise their Rights will receive newly issued Shares within fifteen (15) days
of the record date of the most recent monthly payment under the Distribution
Policy, which record date may occur during the Subscription Period. Common
Stockholders who receive newly issued Common Stock in the Offering will not
receive a distribution under the Distribution Policy with respect to such newly
issued Shares for the record date immediately prior to issuance of the newly
issued Shares. Common Stockholders will be entitled to receive monthly
distributions for record dates subsequent to their receipt of newly issued
Common Stock in accordance with the Distribution Policy. The Offering will not
impact the distributions to be paid to current Common Stockholders regardless of
whether they exercise or sell their Rights or allow their exercised Rights to
lapse, subject to suspension, termination, or modification of the Distribution
Policy by the Board at any time.
Delivery of Stock Certificates. Certificates representing Shares purchased
pursuant to the Primary Subscription will be delivered to subscribers as soon as
practicable after the corresponding Rights have been validly exercised and full
payment for the Shares has been received and cleared. Certificates representing
Shares purchased pursuant to the Over-Subscription Privilege will be delivered
to subscribers as soon as practicable after the Expiration Date and after all
allocations have been conducted.
Foreign Restrictions. Subscription Certificates will only be mailed to Record
Date Stockholders whose addresses are within the United States (other than an
APO or FPO address). Record Date Stockholders whose addresses are outside the
United States or who have an APO or FPO address and who wish to subscribe to the
Offering either in part or in full should contact the Subscription Agent, by
written instruction or recorded telephone conversation at [_phone number_], no
later than three Business Days prior to the Expiration Date. The Fund will
determine whether the Offering may be made to any such Record Date Stockholder.
If the Subscription Agent has received no instruction by the third business day
prior to the Expiration Date or the Fund has determined that the Offering may
not be made to a particular Common Stockholder, the Subscription Agent will
attempt to sell all of such Common Stockholder's Rights and remit the net
proceeds, if any, to such Common Stockholder. If the Rights can be sold, sales
of these Rights will be deemed to have been effected at the average-weighted
sales price received by the Subscription Agent on the day the Rights are sold,
less any applicable brokerage commissions, taxes and other expenses.
Federal Income Tax Consequences Associated with the Offering. The following is a
general summary of the significant federal income tax consequences of the
receipt of Rights by a Record Date Stockholder and a subsequent lapse or
exercise of such Rights. The discussion also addresses the significant federal
income tax consequences to a holder that purchases Rights in a secondary-market
transaction (e.g., on the NYSE). The discussion is based upon applicable
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the
Treasury Regulations promulgated thereunder, and other authorities currently in
effect but does not address any state, local, or foreign tax consequences of the
Offering. Each Common Stockholder should consult its own tax advisor regarding
specific questions as to federal, state, local, or foreign taxes. Each Common
Stockholder should also review the discussion of certain tax considerations
affecting it and the Fund set forth under "Federal Income Tax Matters."
For purposes of the following discussion, the term "Old Share" shall mean a
currently outstanding Share with respect to which a Right is issued and the term
"New Share" shall mean a newly issued Share that Record Date Stockholders
receives upon the exercise of their Rights.
FOR ALL RECORD DATE STOCKHOLDERS
Neither the receipt nor the exercise of Rights by a Record Date Stockholder
will result in taxable income to such stockholder for federal income tax
purposes regardless of whether or not the stockholder makes the
below-described election which is available under Section 307(b)(2) of the
Code (a "Section 307(b)(2) Election").
If the fair market value of the Rights distributed to all of the Record
Date Stockholders is more than 15% of the total fair market value of all of
the Fund's outstanding Common Stock as of the Record Date, or if a Record
Date Stockholder makes a Section 307(b)(2) Election for the taxable year in
which such Rights were received, the Record Date Stockholder's federal
income tax basis in any Right received pursuant to the Offering will be
equal to a portion of the Record Date Stockholder's existing federal income
tax basis in the related Old Share. If made, a Section 307(b)(2) Election
is effective with respect to all Rights received by a Record Date
Stockholder. A Section 307(b)(2) Election is made by attaching a statement
to the Record Date Stockholder's federal income tax return for the taxable
year of the Record Date (which is the same as the year as when the Rights
were received). Record Date Stockholders should carefully review the
differing federal income tax consequences described below before deciding
whether or not to make a Section 307(b)(2) Election.
FOR RECORD DATE STOCKHOLDERS WHEN THE FAIR MARKET VALUE OF RIGHTS DISTRIBUTED
EXCEED 15% OF THE TOTAL FAIR MARKET VALUE OF THE FUND'S COMMON STOCK OR WHEN
MAKING A SECTION 307(b)(2) ELECTION
LAPSE OF RIGHTS. If the fair market value of rights distributed exceed 15%
of the total fair market value of the Common Stock or if a Record Date
Stockholder makes a Section 307(b)(2) Election, no taxable loss will be
realized for federal income tax purposes if the Record Date Stockholder
retains a Right but allows it to lapse without exercise. Moreover, the
existing federal income tax basis of the related Old Share will not be
reduced if such lapse occurs.
EXERCISE OF RIGHTS. If a Record Date Stockholder exercises a Right, the
Record Date Stockholder's existing federal income tax basis in the related
Old Share must be allocated between such Right and the Old Share in
proportion to their respective fair market values as of the Record Date
(effectively reducing the Record Date Stockholder's basis in his Old
Share). Upon such exercise of the Record Date Stockholder's Rights, the New
Shares received by the Record Date Stockholder pursuant to such exercise
will have a federal income tax basis equal to the sum of the basis of such
Rights as described in the previous sentence and the Subscription Price
paid for the New Shares (as increased by any servicing fee charged to the
Record Date Stockholder by his broker, bank or trust company and other
similar costs). If the Record Date Stockholder subsequently sells such New
Shares (and holds such Shares as capital assets at the time of their sale),
the Record Date Stockholder will recognize a capital gain or loss equal to
the difference between the amount received from the sale of the New Shares
and the Record Date Stockholder's federal income tax basis in the New
Shares as described above. Such capital gain or loss will be long-term
capital gain or loss if the New Shares are sold more than one year after
the date that the New Shares are acquired by the Record Date Stockholder.
SALE OF RIGHTS. If an electing Record Date Stockholder sells a Right, he
will recognize a gain or loss equal to the difference between the amount
received for such Right and the federal income tax basis of the Right
computed as set forth above under "Exercise of Rights" above. Any such gain
or loss will be capital gain or loss (if the Right is held as a capital
asset at the time of its sale) and the Record Date Stockholder's holding
period for the Right will include the stockholder's holding period for the
related Old Share. Any such capital gain or loss will be long-term capital
gain or loss if the related Old Share has been held by the Record Date
Stockholder for more than one year at the time the Right is sold.
FOR RECORD DATE STOCKHOLDERS NOT MAKING A SECTION 307(b)(2) ELECTION WHEN THE
FAIR MARKET VALUE OF THE RIGHTS DISTRIBUTED ARE LESS THAN 15% OF THE TOTAL FAIR
MARKET VALUE OF THE FUND'S OUTSTANDING COMMON STOCK
LAPSE OF RIGHTS. If the fair market value of the Rights distributed are
less than 15% of the total fair market value of the outstanding Common
Stock and a Record Date Stockholder does not make a Section 307(b)(2)
Election for the taxable year in which such Rights were received, no
taxable loss will be realized for federal income tax purposes if the Record
Date Stockholder retains a Right but allows it to lapse without exercise.
Moreover, the federal income tax basis of the related Old Share will not be
reduced if such lapse occurs.
EXERCISE OF RIGHTS. If a non-electing Record Date Stockholder exercises his
Rights, the federal income tax basis of the related Old Shares will remain
unchanged and the New Shares will have a federal income tax basis equal to
the Subscription Price paid for the New Shares (as increased by any
servicing fee charged to the Record Date Stockholder by his broker, bank or
trust company and other similar costs). If the Record Date Stockholder
subsequently sells such New Shares (and holds such Shares as capital assets
at the time of their sale), the Record Date Stockholder will recognize a
capital gain or loss equal to the difference between the amount received
from the sale of the New Shares and the stockholder's federal income tax
basis in the New Shares as described above. Such capital gain or loss will
be long-term capital gain or loss if the New Shares are sold more than one
year after the Record Date Stockholder acquires the New Shares through the
Offering.
SALE OF RIGHTS. If a non-electing Record Date Stockholder sells a Right, he
will recognize a gain equal to the entire amount received for such Right.
Any such gain will be a capital gain (if the Right is held as a capital
asset at the time of its sale) and the Record Date Stockholder's holding
period for the Right will include the Record Date Stockholder's holding
period for the related Old Share. Any such capital gain will thus be
long-term capital gain if the related Old Share has been held for more than
one year at the time the Right is sold. In addition, the Record Date
Stockholder's federal income tax basis in the related Old Share will remain
unchanged.
FOR SECONDARY-MARKET PURCHASERS OF RIGHTS. The exercise of Rights by a purchaser
who acquires such Rights on the NYSE or in another secondary-market transaction
will not result in taxable income to such purchaser.
LAPSE OF RIGHTS. A taxable loss will be realized by a purchaser who allows
his Rights to expire without exercise. Such taxable loss will be equal to
the purchaser's cost for the Rights (as increased by any brokerage costs
and similar costs) and will be a short-term capital loss if the purchaser
holds the Rights as capital assets at the time of their lapse.
EXERCISE OF RIGHTS. A purchaser's basis for determining gain or loss upon
the sale of a New Share acquired through the exercise of his Rights will be
equal to the sum of the Subscription Price for the New Share plus the
purchase price of the Rights that were exercised in order to acquire such
New Share (with such Subscription Price and purchase price each being
increased by any applicable servicing fees charged to the purchaser by his
broker, bank or trust company and other similar costs). A purchaser's
holding period for a New Share acquired upon exercise of a Right begins
with the date of exercise of the Right. A taxable gain or loss recognized
by a purchaser upon a sale of a New Share will be a capital gain or loss
(assuming the New Share is held as a capital asset at the time of its sale)
and will be a long-term capital gain or loss if the New Share has been held
at the time of its sale for more than one year.
SALE OF RIGHTS. A taxable gain or loss recognized by a purchaser upon a
sale of a Right will be a short-term capital gain or loss if the Right is
held as a capital asset at the time of its sale.
Employee Plan Considerations. Record Date Stockholders that are employee benefit
plans subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), including corporate savings and 401(k) plans, Keogh Plans of
self-employed individuals and Individual Retirement Accounts ("IRA") (each a
"Benefit Plan" and collectively, "Benefit Plans"), should be aware that
additional contributions of cash in order to exercise Rights may be treated as
Benefit Plan contributions and, when taken together with contributions
previously made, may subject a Benefit Plan to excise taxes for excess or
nondeductible contributions. In the case of Benefit Plans qualified under
Section 401(a) of the Code, additional cash contributions could cause the
maximum contribution limitations of Section 415 of the Code or other
qualification rules to be violated. Benefit Plans contemplating making
additional cash contributions to exercise Rights should consult with their
counsel prior to making such contributions.
Benefit Plans and other tax exempt entities, including governmental plans,
should also be aware that if they borrow in order to finance their exercise of
Rights, they may become subject to the tax on unrelated business taxable income
("UBTI") under Section 511 of the Code. If any portion of an IRA is used as
security for a loan, the portion so used is also treated as distributed to the
IRA depositor.
ERISA contains prudence and diversification requirements and ERISA and the Code
contain prohibited transaction rules that may impact the exercise of Rights.
Among the prohibited transaction exemptions issued by the Department of Labor
that may exempt a Benefit Plan's exercise of Rights are Prohibited Transaction
Exemption 84-24 (governing purchases of shares in investment companies) and
Prohibited Transaction Exemption 75-1 (covering sales of securities).
Due to the complexity of these rules and the penalties for noncompliance,
Benefit Plans should consult with their counsel regarding the consequences of
their exercise of Rights under ERISA and the Code.
Benefit to the Advisers and Co-Administrator. The Advisers and FAS (defined
below) will benefit from the Offering because their fees are based on the
average total net assets of the Fund.
It is not possible to state precisely the amount of additional compensation the
Advisers and FAS will receive as a result of the Offering because the proceeds
of the Offering will be invested in additional portfolio securities that will
fluctuate in value. However, if all Rights are exercised at the Estimated
Subscription Price of $9.98 (i.e., the estimated subscription price based on the
Fund's NAV and Share price on May 4, 2007), the annual compensation to be
received by the Advisers and FAS would be increased by approximately
$________________. This is discussed in "The Investment Co-Advisory Agreements"
below. Two of the Fund's Directors who voted to approve the Offering are
"interested persons" of the Advisers within the meaning of the 1940 Act. These
Directors, Susan L. Ciciora and John S. Horejsi, could benefit indirectly from
the Offering because of their beneficial interest in the Advisers and FAS. See
"Information Regarding the Advisers and Other Service Providers" below. While it
was cognizant of the benefit to the Advisers and FAS and indirect benefit to
these "interested persons," the Board nevertheless concluded that the Offering
was in the best interest of the Fund's stockholders.
The Fund may, in the future and at its discretion, choose to make additional
rights offerings from time to time for a number of Shares and on terms which may
or may not be similar to the Offering. Any such future rights offerings will be
made in accordance with the 1940 Act. Under the laws of Maryland, the state in
which the Fund is incorporated, under certain circumstances, the Board is
authorized to approve rights Offerings without obtaining stockholder approval.
The staff of the SEC has interpreted the 1940 Act as not requiring stockholder
approval of a rights offering at a price below the then current NAV so long as
certain conditions are met, including a good faith determination by the fund's
board of directors that such offering would result in a net benefit to the
Fund's existing stockholders. Such future offerings would similarly benefit the
Advisers and FAS.
INFORMATION ABOUT THE FUND
The Fund is a non-diversified, closed-end management investment company
organized as a Maryland corporation in October 1972. The Fund seeks to produce
both income and long-term capital appreciation by investing in a portfolio of
equity and debt securities. The Fund invests primarily in common stocks,
including dividend paying common stocks such as those issued by utilities, REITs
and RICs. The Fund also invests in fixed income securities such as U.S.
government securities, preferred stocks and bonds. The Fund invests primarily in
securities of U.S.-based companies and to a lesser extent in foreign equity
securities and sovereign debt, in each case denominated in foreign currency. The
Fund has no restrictions on its ability to invest in foreign securities. The
Fund is concentrated in Real Estate Related Companies, which means it must
invest more than 25% of its total assets in such companies. No assurance can be
given that the Fund will achieve its investment objective. The address of the
Fund is 2344 Spruce Street, Suite A, Boulder, Colorado 80302 and its telephone
number is (303) 444-5483.
The Fund began investment activities in January 1974 as a registered closed-end,
diversified management investment company. From its inception, and prior to
April 26, 2002, the Fund was named USLife Income Fund, Inc. and was virtually
100% invested in corporate bonds. In January 2002, the Fund's largest
stockholder, the Ernest Horejsi Trust No. 1B, succeeded in replacing the Board
with a slate of its nominees. Soon thereafter, in April 2002, stockholders
approved changing the Fund's investment objective and corporate name, changing
the Fund's classification from diversified to non-diversified and changing or
eliminating a number of the Fund's fundamental investment restrictions.
Thereafter, the Fund began the process of liquidating its bond portfolio and
started investing in common equities consistent with the new investment
objective.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of the
Board. Accordingly, the Board is responsible for the overall management of the
Fund, including supervision of the duties performed by the Advisers. There are
currently five directors of the Fund, two of whom are "interested persons" of
the Fund (as defined in the 1940 Act).
Information about Directors and Officers. Set forth in the following table is
certain information about each Director of the Fund, including his or her age,
position with the Fund, term of office, length of time served and principal
occupation during the last five years:
---------------------------------------- -------------------------------- ----------------------------------------------------------
Name, Address*, Age Position, Length of Principal Occupation(s) and Other Directorships Held Number of Funds in
During the Past Five Years Fund Complex+
Term Served, and Term of Office Overseen by Director
---------------------------------------- -------------------------------- ----------------------------------------------------------
---------------------------------------- -------------------------------- ----------------------------------------------------------
Independent Directors
Joel W. Looney Director of the Fund since Partner, Financial Management Group, LLC (investment 3
2002. Chairman of the Board of adviser), since July 1999; CFO, Bethany College, 1995-1999;
Chairman the Fund since 2004. Current Director of Boulder Total Return Fund, Inc. ("BTF"), since
term to expire at the 2008 2001; Director and Chairman of the Board, First Financial
Age: 44 annual meeting. Fund, Inc. ("FF"), since 2003.
Dr. Dean L. Jacobson Director of the Fund since Founder and President of Forensic Engineering, Inc. 3
2006. Current term to expire (engineering investigations); Professor Emeritus at Arizona
Age: 68 at the 2008 annual meeting. State University, since 1997; Professor of Engineering at
Arizona State University, prior to 1997; Director of BTF
since 2004; Director of FF since 2003.
Richard I. Barr Director of the Fund since Retired. Manager, Advantage Sales and Marketing, Inc. 3
2002. Current term to expire (food brokerage), 1963-2001; Director of BTF since 1999 and
Age: 69 at the 2008 annual meeting. Chairman of the Board since 2003; Director of FF since 2001.
---------------------------------------- -------------------------------- ----------------------------------------------------------
Interested Directors ++
---------------------------------------- -------------------------------- ----------------------------------------------------------
John S. Horejsi Director of the Fund since Director, Horejsi Charitable Foundation (private charitable 3
2004. Current term to expire foundation), since 1997; Director of BTF and FF since 2006.
Age: 39 at the 2008 annual meeting.
Susan L. Ciciora Director of the Fund since Trustee of the Lola Brown Trust No. 1B and the Ernest 3
2006. Current term to expire Horejsi Trust No. 1B; Director, Horejsi Charitable
Age: 42 at the 2008 annual meeting. Foundation, Inc. (private charitable foundation), since
1997; Director of BTF since 2001; Director of FF since 2003
* The addresses for each Director is c/o Boulder Growth & Income Fund, Inc.,
2344 Spruce Street, Suite A, Boulder, Colorado 80302.
+ The "fund complex" consists of the Fund, BTF and FF.
++ Mr. Horejsi and Ms. Ciciora are "interested persons" of the Fund by virtue
of their relationship with Stewart Horejsi, the Fund's primary portfolio
manager and an employee of BIA and SIA.
Dr. Jacobson and Messrs. Looney and Barr also serve as directors of FF, an
investment company acknowledged to be under common control with the Advisers.
From the late 1980's until January, 2001, Mr. Looney served, without
compensation, as one of three trustees of the Mildred Horejsi Trust, an
affiliate of the Fund's largest stockholder, the Ernest Horejsi Trust No. 1B
(the "EH Trust"). The address for the EH Trust is 3301 C Street, Suite 100,
Anchorage, Alaska 99501.
The EH Trust holds [_____]% of the Fund's outstanding Shares and is the Fund's
largest stockholder. The EH Trust has asserted, and the Fund has acknowledged,
that the EH Trust is a "control person" as contemplated by the 1940 Act. The
sole trustees of the EH Trust are Badlands Trust Company, LLC ("Badlands"),
Larry Dunlap and Susan Ciciora, Stewart Horejsi's daughter (collectively, the
"EH Trustees"). The EH Trustees may also be deemed to be control persons by
virtue of their trusteeship with the EH Trust. The EH Trustees disclaim any such
control relationship. The Stewart R. Horejsi Trust No. 2 (the "SRH Trust"), an
irrevocable grantor trust established by Stewart Horejsi for the benefit of his
issue, is the sole equity owner of Badlands and may be deemed indirectly to be a
control person by virtue of its ownership of Badlands. The SRH Trust disclaims
any such control relationship.
As discussed above, the EH Trust owns [_____]% of the Common Stock, is a
"control person" as contemplated under the 1940 Act and is affiliated with
entities who own the Advisers and FAS (i.e., the Horejsi Affiliates). As a large
stockholder, EH Trust is able to significantly influence any matters upon which
the holders of common stock may vote, including the election of the Fund's
directors and any change in the Fund's investment adviser. Since all members of
the Board are elected annually, the EH Trust may be able to effect a change of
control with respect to the entire Board in a single election. Similarly,
several of the Fund's corporate governance provisions grant stockholders voting
power or decrease the voting requirement necessary to take certain actions. As a
large stockholder, the EH Trust will have greater influence over the adoption or
failure of certain corporate actions requiring a vote of the Fund's
stockholders. In particular, the EH Trust would have a greater influence in
compelling a special meeting with the support of only a small percentage of
other non-Horejsi stockholders. Nonetheless, since most of the other actions
under the Fund's corporate governance provisions require the support of either a
majority or two-thirds of outstanding Shares for a future change, the EH Trust
cannot effect any such change without the support of a substantial number of
non-Horejsi stockholders. However, in these instances, where an action requires
a majority or two-thirds voting approval, the EH Trust may have an effective
veto.
Together with other trusts and entities affiliated with the Horejsi family (more
particularly defined below as the "Horejsi Affiliates"), the EH Trust has
asserted control with respect to two other investment companies, BTF and FF. As
discussed below, the Horejsi Affiliates also own the Advisers and FAS, the
Fund's co-administrator. The following table shows security ownership by the
Independent Directors with respect to the Fund, BTF and FF as of May 4, 2007.
OWNERSHIP OF THE FUND BY INDEPENDENT DIRECTORS
------------------------------------------- ------------------------------------------- --------------------------------------------
Independent Directors and Nominees Dollar Range of Equity Securities in the Aggregate Dollar Range of Equity
Fund (1) Securities in the Fund, BTF and FF(1)
------------------------------------------- ------------------------------------------- --------------------------------------------
Richard I. Barr $10,001 to $50,000 Over $100,000
Joel W. Looney $50,001 to $100,000 Over $100,000
Dr. Dean L. Jacobson $10,001 to $50,000 $50,001 to $100,000
------------------------------------------- ------------------------------------------- --------------------------------------------
(1) Based on closing prices on May 4, 2007.
Direct ownership of the Common Stock by all officers and directors of the Fund
is less than one percent. John Horejsi and Susan Ciciora, interested directors
of the Fund, are discretionary beneficiaries of the EH Trust and may be deemed
to have indirect beneficial ownership of the common stock held by the EH Trust.
Mr. Horejsi and Ms. Ciciora disclaim all such beneficial ownership. Mr. Horejsi
does not directly own any Shares. Stephen Miller, the Fund's president, is an
officer and director of Badlands and may be deemed to have indirect beneficial
ownership of the Shares held by the EH Trust. However, because two of the EH
Trustees are required in order for the EH Trust to vote or exercise dispositive
authority with respect to Shares owned by the EH Trust, Mr. Miller disclaims
beneficial ownership of such Shares.
The names of the officers of the Fund and certain additional information are
listed in the table below. Each officer was elected to office by the Board at a
meeting held on April 27, 2007. Each officer will hold such office until a
successor has been elected by the Board.
---------------------------------------- ----------------------------------- -------------------------------------------------------
Name, Address**, Age Position, Length of Term Served, Principal Occupation(s) and Other Directorships Held
and Term of Office During the Past Five Years
---------------------------------------- ----------------------------------- -------------------------------------------------------
Stephen C. Miller President of the Fund since President of and General Counsel for BIA, since 1999;
Age: 54 January 2002 and Director from Manager, FAS, since 1999; Vice President of SIA, since
January 2002 through October 1998; Director and President of BTF since 1999
2004. Appointed annually. (resigned as Director in 2004); Director and President
of FF since 2003 (resigned as Director and Chairman in
2004); officer of various other entities affiliated
with the Horejsi family; Of Counsel, Krassa &
Miller, LLC since 1991.
Carl D. Johns Chief Financial Officer, Chief Vice President and Treasurer of BIA and Assistant
Age: 44 Accounting Officer, Vice Manager of FAS, since April, 1999; Vice President,
President and Treasurer since Chief Financial Officer and Chief Accounting Officer
January 2002. Appointed annually. of BTF since 1999 and FF since August 2003.
Stephanie J. Kelley Secretary since January 2002. Secretary of BTF since October 2000 and FF since
Age: 50 Appointed annually. August 2003; Assistant Secretary and Assistant
Treasurer of various other entities affiliated with the
Horejsi family; Employee, FAS, since March 1999.
Nicole L. Murphey Assistant Secretary since January Assistant Secretary of BTF since October 2000 and FF
Age: 30 2002. Appointed annually. since August 2003; Employee, FAS, since July 1999.
** The addresses for each officer is c/o Boulder Growth & Income Fund, Inc.,
2344 Spruce Street, Suite A, Boulder, Colorado 80302.
Information Regarding the Advisers and Other Service Providers. The Fund is
co-advised by BIA and SIA. Since January 2002, the Advisers have been providing
advisory services to the Fund and, since March 1999, to BTF. As of November 30,
2006, the Advisers had a total of [$___] million in assets under management.
Boulder Investment Advisers, LLC. BIA was formed on April 8, 1999, as a Colorado
limited liability company and is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended. Together with SIA, BIA serves as
the investment co-adviser to two registered closed-end investment companies, the
Fund and BTF (together, the "Boulder Funds"). At the present time, BIA has only
one other client, also co-advised with SIA, which is an affiliated private
foundation, the Horejsi Charitable Foundation. Stewart R. Horejsi is an employee
of and investment manager for both Advisers and has extensive experience
managing common stocks for the Fund as well as for the various other trusts and
entities affiliated with the Horejsi family (the "Horejsi Affiliates"). The
members of BIA are Evergreen Atlantic, LLC, a Colorado limited liability
company, located at 2344 Spruce Street, Suite A, Boulder CO 80302 and the Lola
Brown Trust No. 1B, an irrevocable Alaska domiciled trust, whose address is c/o
Badlands Trust Company, LLC, 3301 C Street, Suite 100, Anchorage, Alaska 99501
(the "Members"). The Members each hold a 50% interest in BIA. The Members are
"affiliated persons" of the Fund (as that term is defined in the 1940 Act). Both
Mr. Horejsi and John S. Horejsi, Mr. Horejsi's son and one of the Fund's
"interested" directors, are discretionary beneficiaries under the Lola Brown
Trust No. 1B as well as under other Horejsi family affiliated trusts which own
Evergreen Atlantic, LLC. Accordingly, as a result of this relationship, both
Stewart R. Horejsi and John S. Horejsi may directly or indirectly benefit from
the relationship between the Fund and BIA.
Stewart Investment Advisers. SIA is a Barbados international business company,
incorporated on November 12, 1996 and is registered as an investment adviser
under the Investment Advisers Act of 1940, as amended. As discussed above, SIA,
together with BIA, serves as the investment co-adviser to the Boulder Funds and
the Horejsi Charitable Foundation, which presently are SIA's only clients. SIA
is wholly owned by the Stewart West Indies Trust, an irrevocable trust domiciled
in Alaska, established by Stewart Horejsi in 1996 primarily to benefit his issue
(the "West Indies Trust"). The West Indies Trust's address is c/o Badlands Trust
Company, LLC, 3301 C Street, Suite 100, Anchorage, Alaska 99501. Mr. Horejsi is
not a beneficiary under the West Indies Trust. However, John S. Horejsi and
Susan L. Ciciora, Mr. Horejsi's son and daughter and the Fund's "interested"
directors, are discretionary beneficiaries under the West Indies Trust and thus,
as a result of this relationship, may directly or indirectly benefit from the
relationship between the Fund and SIA.
SIA is not domiciled in the United States and substantially all of its assets
are located outside the United States. As a result, it may be difficult to
realize judgments of courts of the United States predicated upon civil
liabilities under federal securities laws of the United States. The Fund has
been advised that there is substantial doubt as to (i) the enforceability in
Barbados of such civil remedies and criminal penalties as are afforded by the
federal securities laws of the United States; (ii) whether the appropriate
foreign courts would enforce judgments of United States courts obtained in
actions against SIA predicated upon the civil liability provisions of the
federal securities laws, or (iii) whether a Barbados court would enforce, in an
original action, liabilities against SIA predicated solely on federal securities
laws. Pursuant to the advisory agreement between SIA and the Fund, SIA has
appointed the Secretary of the Fund (presently Stephanie Kelley in Boulder,
Colorado) as its agent for service of process in any legal action in the United
States, thus subjecting it to the jurisdiction of the United States courts.
Portfolio Managers. Stewart R. Horejsi is the Fund's primary portfolio manager
and, together with Carl D. Johns, the Fund's Vice President and Treasurer, is
responsible for the day-to-day management of the Fund's assets and is primarily
responsible for the Fund's asset allocation. Mr. Horejsi is [69] and has been an
employee of both BIA and SIA since 2001. Mr. Horejsi has been the President or
Manager of various subsidiaries of various Horejsi family affiliates since June
1986, and the investment manager for various Horejsi Affiliates since 1982. He
was a director of BTF until November, 2001; General Manager of Brown Welding
Supply, LLC from 1994 until 1999; and a director of Sunflower Bank from 1982 to
2000. Mr. Horejsi has been President and a Director of the Horejsi Charitable
Foundation, Inc. since 1997. He received a Masters Degree in Economics from
Indiana University in 1961 and a Bachelor of Science Degree in Industrial
Management from the University of Kansas in 1959.
Carl D. Johns, the Fund's Vice President and Treasurer, is also Vice President
and Treasurer for BIA and, together with Mr. Horejsi, is responsible for
research, managing the Fund's fixed income portfolio and BIA's day-to-day
advisory activities. He has worked for BIA since 1999. Since 1999, he has been
Chief Financial Officer, Chief Accounting Officer, Vice President and Treasurer
of the Fund as well as BTF and FF. Mr. Johns is also the assistant manager of
FAS. Prior to joining BIA, Mr. Johns worked at Flaherty and Crumrine,
Incorporated, from 1992 to 1998. During that period he was an Assistant
Treasurer for the Preferred Income Fund Incorporated, the Preferred Income
Opportunity Fund Incorporated, and the Preferred Income Management Fund
Incorporated. Mr. Johns received a Bachelors Degree in Mechanical Engineering at
the University of Colorado in 1985, and a Masters Degree in Finance from the
University of Colorado in 1991.
Additional information regarding the portfolio managers' compensation, other
accounts managed and ownership of Shares is included in the SAI.
The Investment Co-Advisory Agreements. The Advisers and the Fund are parties to
investment co-advisory agreements dated as of April 26, 2002 (the "Advisory
Agreements"). Under the terms of the Advisory Agreements, the Advisers provide
advisory services regarding asset allocation, manage the investment of the
Fund's assets and provide such investment research, advice and supervision, in
conformity with the Fund's investment objective and policies, as necessary for
the operations of the Fund. The Advisory Agreements provide, among other things,
that the Advisers will bear all expenses in connection with the performance of
their services under the Advisory Agreements, although the Fund will bear
certain other expenses to be incurred in its operation, including organizational
expenses, taxes, interest, brokerage costs and commissions and stock exchange
fees; fees of Directors of the Fund who are not also officers, directors or
employees of the Advisers; Securities and Exchange Commission fees; state Blue
Sky qualification fees; insurance premiums; outside auditing and legal expenses;
costs of maintenance of the Fund's existence; membership fees in trade
associations; stock exchange listing fees and expenses; and litigation and other
extraordinary or non-recurring expenses.
The Advisory Agreements provide that the Fund shall pay to the Advisers for
their services an aggregate monthly fee at the annual rate of 1.25% of the
Fund's average monthly total net assets (the "Adviser Fee") (including the
principal amount of leverage, if any). Under the terms of the Advisory
Agreements, the Advisers split the Adviser Fee as determined by the Advisers and
approved by the Board from time to time. Presently, the Adviser Fee is split
between BIA and SIA 25% and 75%, respectively. Although the Advisers intend to
devote such time and effort to the business of the Fund as is reasonably
necessary to perform their respective duties to the Fund, the services of the
Advisers are not exclusive and the Advisers may provide similar services to
other investment companies and other clients and may engage in other activities.
At a regular meeting of the Board held on January 27, 2007, the Advisers agreed
to a waiver of advisory fees at certain "break-point" levels such that, in the
future, the Adviser Fee would be calculated at the annual rate of 1.25% on asset
levels up to $400 million, 1.10% on assets levels between $400-$600 million; and
1.00% on asset levels exceeding $600 million. The fee waiver agreement has a
one-year term and is renewable annually.
The Advisory Agreements provide that the Advisers shall not be liable for any
error of judgment or mistake of law or omission or any loss suffered by the Fund
in connection with the matters to which the agreements relate, although the
agreements do not protect or purport to protect the Advisers against any
liability to the Fund to which the Advisers would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence on their part in the
performance of their duties or from reckless disregard by them of their
obligations and duties under the agreements. Each Advisory Agreement also
provides for indemnification by the Fund of the Advisers and their partners,
members, officers, employees, agents and control persons for liabilities
incurred by them in connection with their services to the Fund, subject to
certain limitations and conditions.
Each Advisory Agreement will continue in effect without a term so long as its
continuation is specifically approved at least annually by both (i) the vote of
a majority of the Board or the vote of a majority of the outstanding voting
securities of the Fund (as such term is defined in the 1940 Act) and (ii) by the
vote of a majority of the directors who are not parties to such Advisory
Agreement or interested persons (as such term is defined in the 1940 Act) of any
such party, cast in person at a meeting called for the purpose of voting on such
approval. Any of the Advisory Agreements may be terminated as a whole at any
time by the Fund, without the payment of any penalty, upon the vote of a
majority of the Board or a majority of the outstanding voting securities of the
Fund or by the Advisers on 60 days' written notice by either party to the other.
Except as otherwise provided by order of the Securities and Exchange Commission
or any rule or provision of the 1940 Act, each of the Advisory Agreements will
terminate automatically in the event of their assignment (as such term is
defined in the 1940 Act and the rules thereunder).
Fund Administrative Services, LLC. The Fund's co-administrator is FAS. FAS
(formerly Boulder Administrative Services, LLC) is a Colorado limited liability
company whose principal place of business is 2334 Spruce Street, Suite A,
Boulder, Colorado 80302. The members of FAS are Lola Brown Trust No. 1B (50%)
and Evergreen Atlantic, L.L.C. (50%) (the "Members"), each of which is
considered to be an "affiliated person" of the Fund as that term is defined in
the 1940 Act. The officers of FAS are Stephen C. Miller, manager; Carl D. Johns,
assistant manager; Laura Rhodenbaugh, secretary/treasurer; and Stephanie Kelley,
assistant secretary. Since January 2002, FAS has been providing certain
administrative and executive management services to the Fund, including among
other things negotiation of service provider contracts, oversight of service
providers, maintenance of the Fund's policies and procedures, and provision of
compliance, legal and fund accounting services. FAS has also provided such
administrative and executive management services to BTF since March 1999, and to
FF since August 2003.
The Fund and FAS are parties to an Administration Agreement dated February 1,
2004 (the "Administration Agreement"). FAS is owned by the Members, who, as
indicated above, are also the owners of BIA and are included in the group
referred to herein as the Horejsi Affiliates. As discussed above, Stewart R.
Horejsi and his son John S. Horejsi and daughter Susan L. Ciciora (the Fund's
"interested" directors), are discretionary beneficiaries under the Lola Brown
Trust No. 1B, one of the Members of FAS, and under the trusts that own Evergreen
Atlantic, LLC, the other Member of FAS.
Under the Administration Agreement, the Fund pays FAS a monthly fee calculated
at an annual rate of 0.20% of the value of the Fund's average monthly total net
assets (including the principal amount of leverage, if any) up to $250 million;
0.18% of the Fund's average monthly total net assets on the next $150 million;
and, 0.15% on the value of the Fund's average monthly total net assets over $400
million. Notwithstanding, FAS has agreed to cap the Fund's total administration
costs at 0.30% (including administration, co-administration, transfer agent and
custodian fees). Accordingly, FAS has agreed to waive a portion of its fee
should the total monthly administration expenses exceed 0.30%.
Investors Bank & Trust Company. Investors Bank & Trust Company ("Investors
Bank"), located at 200 Clarendon Street, Boston, Massachusetts 02116, serves as
the Fund's co-administrator and custodian. As co-administrator, Investors Bank
provides certain services including fund accounting and preparation of materials
for Board meetings. Under an administration agreement and custody agreement
between the Fund and Investors Bank, the Fund pays Investors Bank a combined
monthly fee for both co-administrative and custodian services calculated at an
annual rate of 0.058% of the value of the Fund's average monthly total net
assets (including the principal amount of leverage, if any) up to $300 million
and 0.04% on the value of the Fund's average monthly total net assets over $300
million, or a minimum monthly fee of $10,500. Presently, because of the level of
the Fund's average monthly total net assets, the Fund pays the minimum of
$10,500 monthly. In addition, Investors Bank receives certain out-of-pocket
expenses, transaction fees and certain charges for securities transactions. All
customary fees of the custodian are paid by the Fund.
PFPC Inc. The transfer agent, dividend disbursing agent and registrar for the
Shares is PFPC, an indirect, majority-owned subsidiary of the PNC Financial
Services Group, Inc. PFPC is located at 4400 Computer Drive, Westborough, MA
01581-5120. As compensation for PFPC's services, the Fund pays PFPC a monthly
fee plus certain out-of-pocket expenses.
FEDERAL INCOME TAX MATTERS
Taxation of the Fund. The Fund has qualified and elected to be taxed as a
regulated investment company under Subchapter M of the Code. Accordingly, the
Fund must, among other things, (a) derive in each taxable year at least 90% of
its gross income (including tax-exempt interest) from dividends, interest,
payments with respect to certain securities loans, and gains from the sale or
other disposition of stock, securities or foreign currencies, or other income
(including but not limited to gains from options, futures and forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies; and (b) diversify its holdings so that, at the end of each quarter
of the Fund's taxable year (i) at least 50% of the market value of the Fund's
total assets is represented by cash and cash items, U.S. Government securities,
the securities of other regulated investment companies and other securities,
with such other securities limited, in respect of any one issuer, to an amount
not greater than 5% of the value of the Fund's total assets and to not more than
10% of the outstanding voting securities of such issuer; and (ii) not more than
25% of the market value of the Fund's total assets is invested in the securities
of any one issuer (other than U.S. Government securities and the securities of
other regulated investment companies) or of any two or more issuers that the
Fund controls and which are determined to be engaged in the same trade or
business or similar or related trades or businesses.
As a regulated investment company, the Fund generally is not subject to U.S.
federal income tax on income and gains that it distributes each taxable year to
its stockholders, if at least 90% of the sum of the Fund's (i) investment
company taxable income (which includes, among other items, dividends, interest
and any excess of net short-term capital gains over net long-term capital losses
and other taxable income other than any net capital gain (as defined below)
reduced by deductible expenses) determined without regard to the deduction for
dividends paid and (ii) its net tax-exempt interest (the excess of its gross
tax-exempt interest over certain disallowed deductions). The Fund intends to
distribute at least annually substantially all of such income.
Amounts not distributed on a timely basis in accordance with a calendar-year
distribution requirement are subject to a nondeductible 4% excise tax at the
Fund level. To avoid this tax, the Fund must distribute during each calendar
year an amount equal to the sum of (1) at least 98% of its ordinary income (not
taking into account any capital gains or losses) for the calendar year; (2) at
least 98% of its capital gains in excess of its capital losses (adjusted for
certain ordinary losses) for a one-year period generally ending on October 31 of
the calendar year (unless, an election is made by a fund with a November or
December year-end to use the fund's fiscal year); and (3) certain undistributed
amounts from previous years on which the Fund paid no U.S. federal income tax.
While the Fund intends to distribute any income and capital gains in the manner
necessary to minimize imposition of the 4% excise tax, there can be no assurance
that sufficient amounts of the Fund's taxable income and capital gains will be
distributed to avoid entirely the imposition of the tax. In that event, the Fund
will be liable for the tax only on the amount by which it does not meet the
foregoing distribution requirement.
If for any taxable year the Fund does not qualify as a regulated investment
company, all of its taxable income (including its net capital gains) will be
subject to tax at regular corporate rates without any deduction for
distributions to stockholders, and such distributions will be taxable to
stockholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits.
Taxation Of Stockholders. Distributions paid to stockholders by the Fund from
its ordinary income or from an excess of net short-term capital gains over net
long-term capital losses (together referred to hereinafter as "regular
dividends") are taxable to stockholder as ordinary income to the extent of the
Fund's earning and profits. Distributions made to stockholders from an excess of
net long-term capital gains over net short-term capital losses ("capital gain
dividends"), including capital gain dividends credited to stockholders but
retained by the Fund, are taxable to stockholders as long-term capital gains,
regardless of the length of time stockholders have owned Fund shares.
Distributions in excess of the Fund's earnings and profits will first reduce the
adjusted tax basis of shares held by a stockholder and, after such adjusted tax
basis is reduced to zero, will constitute capital gains to stockholders
(assuming the shares are held as a capital asset).
Under a recently enacted law, however, special rules apply to regular dividends
paid to individuals. Such a dividend, with respect to taxable years ending on or
before December 31, 2010, may be subject to tax at the rates generally
applicable to long-term capital gains for individuals (currently at a maximum
rate of 15%), provided that the individual receiving the dividend satisfies
certain holding period requirements. The long-term capital gains rates will
generally apply to the portion of the regular dividends paid by the Fund to an
individual in a particular taxable year that is attributable to qualified
dividends received by the Fund in that taxable year. The Fund does not expect to
have significant dividends that will qualify for this tax rate due to its
significant holdings in REITs (distributions from which generally do not
qualify). For this purpose, "qualified dividends" means dividends received by
the Fund after December 31, 2002 from United States corporations and qualifying
foreign corporations, provided that the Fund satisfies certain holding period
requirements in respect of the stock of such corporations. In the case of
securities lending transactions, payments in lieu of dividends are not qualified
dividends.
Generally, not later than 60 days after the close of its taxable year, the Fund
will provide stockholders with a written notice designating the amount of any
regular dividends that may qualify for the reduced rate, capital gain dividends
and other distributions.
The sale or other disposition of common shares of the Fund will generally result
in capital gain or loss to stockholders, and will be long-term capital gain or
loss if the shares have been held for more than one year at the time of sale.
Any loss upon the sale or exchange of Fund shares held for six months or less
will be treated as long-term capital loss to the extent of any capital gain
dividends received (including amounts credited as an undistributed capital gain
dividend) by stockholders. A loss realized on a sale or exchange of shares of
the Fund will be disallowed if other Fund shares are acquired (whether through
the automatic reinvestment of dividends or otherwise) within a 61-day period
beginning 30 days before and ending 30 days after the date that the shares are
disposed of. In such case, the basis of the shares acquired will be adjusted to
reflect the disallowed loss. Present law taxes both long-term and short-term
capital gains of corporations at the rates applicable to ordinary income. For
individual (non-corporate) taxpayers, however, short-term capital gains and
ordinary income are currently taxed at a maximum rate of 35% while long-term
capital gains recognized on or after May 6, 2003 are taxed at a maximum rate of
15%.
Dividends and other taxable distributions are taxable to stockholders even
though they are reinvested in additional shares of the Fund. Although the Fund
does not intend to pay dividends in January, if it does pay such a dividend
which was declared in the previous October, November or December to stockholders
of record on a specified date in one of such months, then such dividend will be
treated for tax purposes as being paid by the Fund and received by stockholders
on December 31 of the year in which the dividend was declared. The Fund intends
to distribute all net investment income and any capital gains during the month
of December of each year.
The Fund is required in certain circumstances to backup withhold on taxable
dividends and certain other payments paid to non-corporate holders of the Fund's
shares who do not furnish the Fund with their correct taxpayer identification
number (in the case of individuals, their Social Security number) and certain
certifications, or who are otherwise subject to backup withholding. Backup
withholding is not an additional tax. Any amounts withheld from payments made to
stockholders may be refunded or credited against a stockholders' U.S. federal
income tax liability, if any, provided that the required information is
furnished to the Internal Revenue Service.
The foregoing is a general and abbreviated summary of the provisions of the Code
and the Treasury regulations in effect as they directly govern the taxation of
the Fund and its stockholders. These provisions are subject to change by
legislative or administrative action, and any such change may be retroactive.
Stockholders are urged to consult their tax advisers regarding specific
questions as to U.S. federal, foreign, state, local income or other taxes.
Taxation Regarding the Distribution Policy. The Fund has adopted a managed
distribution policy (defined below as the "Distribution Policy") whereby the
Fund makes monthly distributions to stockholders from net investment income,
capital gains and/or return of capital, subject to the Board's right to suspend,
modify, or terminate the distributions at any time. See "Dividends and
Distributions - Managed Distribution Policy".
Generally, distributions under the Policy will consist mostly of a
return-of-capital to stockholders. Distributions may have a small component of
net investment income, but the exact tax characteristics of the distributions
will not be known until the Fund's fiscal year-end (e.g., November 30 of each
year). A "return of capital" represents a return of a stockholder's original
investment in the Fund's shares, and should not be confused with a dividend
yield. A "return of capital" is a return of stockholders' capital investment in
the Fund. A return of capital is generally not taxable and is not considered
"yield," or "income," or "capital gains," items which are taxable. When
stockholders receive a return of capital, they are getting back part of their
investment and consequently the return of their already-taxed capital investment
is tax free to the stockholders.
An IRS Form 1099-DIV will be sent to stockholders indicating the tax
characteristic of the distributions they received and exactly how much would be
net investment income, ordinary income, capital gains, if any, and return of
capital, if any. This Form 1099-DIV should help stockholders in determining the
tax treatment of their distributions under the Distribution Policy. Currently,
the Fund does not expect that distributions will include any capital gain
component. In addition, it is possible that a portion of the distributions will
represent capital gains earned by the Fund but offset by capital loss
carry-forwards, which will be taxable at ordinary income tax rates. To the
extent stockholders receive a return of capital they will be required to adjust
their cost basis by the same amount upon the sale of their Fund shares. This
adjustment to their cost basis in shares of the Fund means that, when
stockholders do decide to sell their shares of stock in the Fund, they will have
a larger capital gain (or smaller capital loss) than prior to the implementation
of the Distribution Policy. This may have negative tax consequences;
stockholders should seek their own tax advice regarding the reporting of income
and the gain or loss on the sale of the Fund's shares.
Although the Fund may indicate what it expects the tax characteristics of its
distributions to be, it is subject to change depending on a number of factors
including market conditions throughout the year and the magnitude of income and
realized gains for the year. Any portion of a distribution that is paid by the
Fund out of net investment income, or from capital gains, will be taxable at the
appropriate rates, and this information, as stated above, will be given to
stockholders on IRS Form 1099-DIV. Stockholders can expect to receive
tax-reporting information for 2006 distributions from either their brokers or
from the Fund's transfer agent indicating the exact composition per share of the
dividends and distributions received during the calendar year. Stockholders
should consult their tax advisor for proper tax treatment of each Fund's
distributions.
The Distribution Policy is likely to have a negative tax impact on stockholders.
If the Fund has net realized long-term capital gains during its fiscal year, and
the Fund has paid out distributions during the year, the Internal Revenue Code
will deem such gains to have been paid out, even in circumstances where the
distributions have not resulted in the violation of Section 19(b) of the 1940
Act. These gains will be treated as ordinary income, and will be taxed at
ordinary income tax rates instead of the more favorable long-term capital gain
rate. Moreover, notwithstanding the stockholders being treated as if they have
received ordinary income, the Fund would still lose its capital loss
carry-forwards in the amount of the gains realized. Accordingly, the payment of
managed distributions when the Fund is utilizing capital loss carry-forwards to
offset realized capital gains will result in tax inefficiencies for the Fund's
stockholders.
DETERMINATION OF NET ASSET VALUE
The net asset value of common stock of the Fund is computed based upon the value
of the Fund's portfolio securities and other assets. Net asset value per Share
is determined as of the close of the regular trading session on the NYSE no less
frequently than the last business day of each week and month, provided, however,
that if any such day is a holiday or determination of net asset value on such
day is impracticable, the net asset value is calculated on such earlier or later
day as determined by the Advisers. The Fund calculates net asset value per Share
by subtracting the Fund's liabilities (including accrued expenses, dividends
payable and any borrowings of the Fund) and the liquidation value of any
outstanding preferred stock from the Fund's total assets (the value of the
securities the Fund holds plus cash or other assets, including interest accrued
but not yet received) and dividing the result by the total number of Shares
outstanding.
The Fund values its holdings by using market quotations provided by pricing
services, prices provided by market makers or estimates of market values
obtained from yield data relating to instruments or securities with similar
characteristics in accordance with procedures established by the Board.
Short-term securities having a maturity of 60 days or less are valued at
amortized cost, which approximates market value. Any securities or other assets
for which current market quotations are not readily available are valued at
their fair value as determined in good faith under procedures established by and
under the general supervision and responsibility of the Board.
CAPITALIZATION OF THE FUND AND OTHER MATTERS
Repurchase of Common Shares. Shares of closed-end investment companies often
trade at a discount to their net asset values, and the Shares have in the past
and may in the future trade at a discount to their net asset value. The market
price of the Shares is determined by such factors as relative demand for and
supply of such Shares in the market, the Fund's net asset value, general market
and economic conditions and other factors beyond the control of the Fund.
Although the Common Stockholders do not have the right to require the Fund to
redeem their Shares, the Fund may take action, from time to time, to repurchase
Shares in the open market or make tender offers for its Shares at their net
asset value. This may, but will not necessarily, have the effect of reducing any
market discount from net asset value.
The acquisition of Shares by the Fund will decrease the total assets of the Fund
and, therefore, have the effect of increasing the Fund's expense ratio and may
adversely affect the ability of the Fund to achieve its investment objectives.
Furthermore, the acquisition of Shares by the Fund may require the Fund to
redeem the AMPS in order to maintain certain asset coverage requirements. To the
extent the Fund may need to liquidate investments to fund repurchase of Shares,
this may result in portfolio turnover which will result in additional expenses
being borne by the Fund. The Board currently considers the following factors to
be relevant to a potential decision to repurchase Shares: the extent and
duration of the discount, the liquidity of the Fund's portfolio, the impact of
any action on the Fund or its stockholders and market considerations. Any Share
repurchases or tender offers will be made in accordance with the requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the
1940 Act. See "Repurchase of Shares" in the SAI.
Capitalization. The Charter authorizes the issuance of 250,000,000 shares of
common stock, par value $0.01 per share. The Board has authorized
reclassification of up to 10,000 of these shares in one or more series of
preferred stock, of which 1,000 have been reclassified and issued as AMPS. In
2002, Fund stockholders approved an amendment to the Charter which authorizes
the Board, without stockholder approval, to increase the Fund's authorized
capital. Pursuant to such amendment, and in connection with a rights offering in
2002, the Board approved an amendment to increase the authorized stock of the
Fund to its current level.
Rights with Regard to Dividends, Voting and Liquidation. Shares, when issued
against payment therefor, are fully paid and non-assessable. The Shares have no
preemptive, conversion, exchange or redemption rights. Each Share has one vote
and shares equally in dividends and distributions when and if declared by the
Fund and in the Fund's net assets upon liquidation. All voting rights for the
election of directors are non-cumulative. Consequently, the holders of more than
50% of the Shares can elect 100% of the directors then nominated for election if
they choose to do so (subject to the right of holders of preferred shares to
elect directors) and, in such event, the holders of the remaining Shares will
not be able to elect any directors.
Common Stock. The Fund conducted a rights offering in 2002, is conducting the
Offering and may conduct rights offerings in the future. Any additional
offerings of shares of capital stock, if made, will require approval by the
Board. Any additional offering of Shares will be subject to the requirements of
the 1940 Act that common shares may not be issued at a price below the then
current net asset value (exclusive of underwriting discounts and commissions)
except in connection with an offering to existing stockholders or with the
consent of a majority of the common stockholders.
The Common Stock traded on the NYSE from January 1974 to April 29, 2002 under
the symbol "UIF". From April 30, 2002 to the present, the Common Stock has
traded on the NYSE under the symbol "BIF". On May 4, 2007, there were 11,383,335
Shares issued and outstanding, the net asset value per Share was $9.20 and the
closing price per Share on the NYSE was $12.73.
Trading and Net Asset Value Information. In the past, the Shares have traded at
both a premium and at a discount in relation to NAV. Although the Shares
recently have been trading at a premium above NAV, there can be no assurance
that this premium will continue after the Offering or that the Shares will not
again trade at a discount. Shares of closed-end investment companies such as the
Fund frequently trade at a discount from NAV. See "Risk Factors." The Shares are
listed and traded on the NYSE. The average weekly trading volume of the Shares
on the NYSE during the calendar year ended December 31, 2006 was ___________
Shares. The following table shows for the quarters indicated: (i) the high and
low sale price of the Shares on the NYSE; (ii) the high and low NAV per Share;
and (iii) the high and low premium or discount to NAV at which the Shares were
trading (as a percentage of NAV).
Fiscal Quarter Ended Price $ Net Asset Value $ Premium/(Discount) to Net Asset
Value %
High Low High Low High Low
On April 27, 2007, the Friday immediately prior to the Fund's announcement of
the Offering on April 30, 2007, the last reported sale price per Share on the
NYSE was $15.06. The Fund's NAV per Share on April 27, 2007, was $9.19. The
premium of the Shares on April 27, 2007 was 63.9%.
Preferred Stock. Under the Charter, the Board is authorized to classify and
reclassify any unissued Shares as part of an issuance of preferred stock. The
Board is also authorized to set or change the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends and other
distributions, qualifications or terms or conditions of redemption of such
Shares. Under the 1940 Act, the Fund is permitted to have outstanding more than
one series of preferred shares so long as no single series has a priority over
another series as to the distribution of assets of the Fund or the payment of
dividends. Holders of Shares and outstanding preferred shares of the Fund have
no preemptive right to purchase any preferred shares that might be issued. On
July 29, 2005, the Board authorized the reclassification of up to 10,000 of the
Fund's unissued Shares as preferred stock.
As of May 4, 2007, the Fund has outstanding 1,000 shares of Auction Market
Preferred Shares (previously defined as the AMPS). The AMPS were issued with a
liquidation preference per share of $25,000, plus accumulated and unpaid
dividends, and are senior securities of the Fund. The AMPS were issued on
November 14, 2005, and the first dividend payment date was November 15, 2005.
The AMPS normally have a dividend period consisting of 28 days. The Board may,
from time to time, declare a different dividend period upon giving notice to the
holders of the AMPS. Dividends on the AMPS are cumulative from the date they are
first issued and are payable when, as and if declared by the Board, out of funds
legally available therefor. The dividend rate for the AMPS is determined by
auction. The dividend rate for the initial dividend period was [3.85]% and the
first auction was held on __________, 2005. The current dividend rate paid by
the Fund for its AMPS leverage is _______% as of the auction held on
______________, 2007.
It was a condition to their issuance that the AMPS be issued with a rating of
not less than "Aaa" from Moody's Investor Services, Inc. ("Moody's") and "AAA"
from Fitch, Inc. ("Fitch"). These ratings are an assessment of the capacity and
willingness of an issuer to pay preferred stock obligations. The ratings are not
a recommendation to purchase, hold, or sell those shares, inasmuch as the rating
does not comment as to market price or suitability for a particular investor.
The rating agency guidelines described above also do not address the likelihood
that an owner of AMPS will be able to sell such shares in an auction or
otherwise. The ratings are based on current information furnished to Moody's and
Fitch by the Fund and the Advisers and information obtained from other sources.
The ratings may be changed, suspended or withdrawn, in the rating agencies'
discretion, as a result of changes in, or the unavailability of, such
information. In connection with the receipt of such rating, the composition of
the Fund's portfolio must reflect guidelines established by Moody's and Fitch
and the Fund is required to maintain a minimum discounted asset coverage with
respect to the AMPS.
Holders of AMPS do not have the right to cause the Fund to redeem their shares.
The Fund may, however, be required by applicable law or by rating agency
guidelines to redeem the AMPS if, for example, the Fund does not meet an asset
coverage ratio required by law or correct a failure to meet a rating agency
guideline in a timely manner. The Fund may also voluntarily redeem the AMPS
without the consent of its holders.
The 1940 Act requires that the holders of any preferred shares, voting together
as a single class separate from the holders of common shares, have the right to
elect at least two directors of the Fund at all times and to elect a majority of
the directors at any time if two years' dividends on the AMPS have not been paid
and the Fund has not eliminated all dividend arrearages. The holders of AMPS and
any other outstanding preferred shares will vote as a separate class on certain
other matters as required under the Charter, the 1940 Act, and Maryland law.
Each AMPS share carries one vote with respect to matters on which AMPS can be
voted. AMPS, when issued against payment therefor, will be fully paid and non
assessable and have no preemptive, conversion or cumulative voting rights.
Effects of Leverage. The only obligation that the Fund has to holders of the
AMPS is to pay the agreed-upon dividend rate as set by auction every 28 days.
Any income earned in excess of such dividend rate and Fund expenses would
directly benefit Common Stockholders. The Fund may not pay any ordinary dividend
to Common Stockholders until after all dividends due the holders of AMPS have
been paid. The following table is designed to assist stockholders in
understanding the effects of leverage on an investment in the Fund. The figures
appearing in the table are hypothetical and actual returns may be greater or
less than those appearing in the table.
Assumed Return on Portfolio Assets (Net of Expenses) -10% -5% 0% 5% 10%
------------- -------------- ------------- -------------- -------------
------------- -------------- ------------- -------------- -------------
Corresponding Actual Returns to Common Stockholders Under [-17.9%] [-10.2%] [-2.5%] [5.2%] [12.9%]
Current Capital Structure (i.e., prior to Offering)
Corresponding Expected Returns to Common Stockholders Post [-16.6%] [-9.4%] [-2.3%] [4.8%] [11.9%]
Offering
The following factors associated with leveraging, in addition to those items
discussed in "Risk Factors and Special Considerations" above, could increase the
investment risk and volatility of the price of the Shares:
(1) leveraging exaggerates any increase or decrease in the value of the
Shares;
(2) the dividend requirements on preferred stock may exceed the income
from the portfolio securities purchased with the proceeds from the
issuance of preferred stock;
(3) a decline in NAV results if the investment performance of the
additional securities purchased fails to cover their cost to the Fund
(including any dividend requirements of preferred stock);
(4) a decline in NAV could affect the ability of the Fund to make Common
Stock dividend payments;
(5) a failure to pay dividends or make distributions could result in the
Fund's ceasing to qualify as a regulated investment company under the
Code; and
(6) if the asset coverage for preferred stock or debt securities declines
to less than two hundred percent or three hundred percent,
respectively (as a result of market fluctuations or otherwise), the
Fund may be required to sell a portion of its investments when it may
be disadvantageous to do so.
Pursuant to Section 18 of the 1940 Act, it is unlawful for the Fund, as a
registered closed-end investment company, to issue any class of senior security,
or to sell any such security of which it is an issuer, unless it can satisfy
certain "asset coverage" ratios. The asset coverage ratio means the ratio of the
value of the total assets of such investment company (less all liabilities and
indebtedness not represented by senior securities) to the aggregate amount of
debt securities of such investment company (plus the involuntary liquidation
preference of the preferred stock of such company). If the senior securities are
stock, such as the AMPS, such stock must have an asset coverage of at least 200%
immediately after issuance or sale of such stock. If the senior securities
represent an indebtedness (i.e., "debt securities"), such debt securities must
have an asset coverage of at least 300% immediately after issuance or sale of
such debt securities. Subject to certain exceptions, if the Fund fails to
satisfy these asset coverage ratios, it will, among other things, be prohibited
from declaring any dividend (except a dividend payable in stock issued by the
Fund) or declaring any other distribution. Notwithstanding the foregoing, a
registered investment company may, to the extent permitted by the 1940 Act,
segregate assets or "cover" transactions in order to avoid the creation of a
class of senior security.
The rating received by the Fund on its AMPS, or on any other senior security
which it may issue, is an assessment of the capacity of the Fund to satisfy its
obligations on the AMPS or such other senior security. However, the rating on
AMPS does not eliminate or mitigate the risks associated with investing in the
Fund's securities. In addition, should the rating on the AMPS be lowered or
withdrawn by the relevant rating agency, there may be an adverse effect on the
market value of the AMPS. The Fund may also be required to redeem all or part of
the AMPS. If such partial or whole redemption of the AMPS occurs, as a result of
the change in or withdrawal of the rating, the Common Stock of the Fund will
lose any potential benefits associated with a leveraged capital structure.
Voting Rights Associated with the AMPS. Except as otherwise indicated in this
Prospectus and in the SAI, or as provided in the Charter and Articles
Supplementary or as otherwise required by law, holders of AMPS will have equal
voting rights with holders of Common Stock and any other Preferred Stock (one
vote per share) and will vote together with holders of Common Stock and any
other preferred shares as a single class. Holders of outstanding Preferred
Stock, including AMPS, voting as a separate class, are entitled to elect two of
the Fund's directors. The remaining directors are elected by holders of
outstanding Common Stock voting as a separate class. In addition, if at any time
dividends (whether or not earned or declared) on AMPS are due and unpaid in an
amount equal to two full years of dividends, and sufficient cash or specified
securities have not been deposited with the auction agent for the payment of
such dividends, the sole remedy of holders of outstanding Preferred Stock is
that the number of directors constituting the Board will be automatically
increased by the smallest number that, when added to the two directors elected
exclusively by the holders of Preferred Stock as described above, would
constitute a majority of the Board. The holders of Preferred Stock will be
entitled to elect that smallest number of additional directors at a special
meeting of stockholders held as soon as possible and at all subsequent meetings
at which directors are to be elected, unless such special voting rights are
terminated as explained below. The terms of office of the persons who are
directors at the time of that election will continue unless the election of
additional directors by holders of Preferred Stock would cause the number of
directors to exceed 12. If the Fund thereafter pays in full all accumulated and
unpaid dividends on all outstanding Preferred Stock, the special voting rights
stated above will cease and the terms of office of the additional directors
elected by the holders of the Preferred Stock will automatically terminate.
The affirmative vote of a majority of the votes entitled to be cast by the
holders of the outstanding shares of AMPS or such higher percentage as may be
required by the Charter, voting as a separate class, will be required to amend
the Charter so as to adversely affect in any material respect any contract right
of the AMPS or the holders thereof expressly set forth in the Charter. The
affirmative vote of at least a majority of the votes entitled to be cast by the
outstanding holders of AMPS, voting as a separate class, will be required to
issue any shares of Preferred Stock ranking prior to or on a parity with the
AMPS as to the payment of dividends or the distribution of assets upon
dissolution, liquidation or winding up of the affairs of the Fund (other than
previously authorized and unissued shares of AMPS, including any shares of AMPS
purchased or redeemed by the Fund), or increase the authorized amount of AMPS or
any other Preferred Stock. Unless a higher percentage is provided for in the
Charter, the affirmative vote of a majority of the outstanding AMPS (as
determined under the 1940 Act), voting as a separate class, will be required to
approve any plan or reorganization adversely affecting the shares or any action
requiring a vote of security holders under Section 13(a) of the 1940 Act
including, among other things, changes in the Fund's investment objective or
changes in certain restrictions described above under "Investment Objective and
Policies" and in the SAI under "Investment Objective and Policies - Investment
Restrictions". The class vote of holders of shares of AMPS described above will
in each case be in addition to a separate vote of the requisite percentage of
the votes entitled to be cast by holders of Shares and outstanding AMPS, voting
as a single class, necessary to authorize the action in question.
The voting provisions with respect to the AMPS described in this Prospectus will
not apply if at, or prior to, the time at which the act with respect to which
the vote would otherwise be required is effected, all outstanding AMPS have been
redeemed or called for redemption and sufficient funds shall have been deposited
in trust to effect such redemptions.
Anti-Takeover Provisions of the Charter and Bylaws. At a meeting of stockholders
held in May 2004, stockholders approved a comprehensive range of corporate
governance proposals which abolished or changed a number of anti-takeover
provisions previously adopted by the Fund. These included, among others,
proposals to (i) declassify the Board; (ii) elect directors by a plurality of
votes cast; (iii) permit stockholders to effect Bylaw amendments; (iv) set the
number of directors at exactly five; and (v) prohibit the Fund from opting into
the Maryland Unsolicited Takeovers Act. Nonetheless, the Fund presently has
provisions in its Charter and Bylaws which may still have the effect of limiting
the ability of other entities or persons to acquire control of the Fund, to
cause it to engage in certain transactions or to modify its structure (commonly
referred to as "anti-takeover" provisions):
(1) The Charter requires the affirmative vote of at least two-thirds of the
votes entitled to be cast by holders of common stock to approve, adopt or
authorize (a) certain business combinations (e.g., merger, consolidation or
liquidation, or sale, lease, exchange, mortgage, pledge, transfer or other
disposition of the Fund's assets, etc.); (b) voluntary liquidation or
dissolution of the Fund; (c) stockholder proposals regarding investment
decisions; (d) conversion from a closed-end to an open-end investment company;
or (e) a self-tender for, or acquisition by the Fund of, more than 25% of the
Fund's outstanding shares of stock, during any twelve-month period.
(2) The Fund's Bylaws contain provisions the effect of which is to prevent
matters, including nominations of Directors, from being considered at
stockholders' meetings where the Fund has not received sufficient prior notice
of the matters.
The percentage of votes required under these provisions, which are greater than
the minimum requirements under Maryland law or the 1940 Act, make it more
difficult to effect a change in the Fund's business or management and could have
the effect of depriving holders of common shares of an opportunity to sell
shares at a premium over prevailing market prices by discouraging a third party
from seeking to obtain control of the Fund in a tender offer or similar
transaction. The Board, however, has considered these anti-takeover provisions
and believes that they are in the best interests of stockholders.
Reports to Stockholders. The Fund sends unaudited semi-annual reports and
audited annual reports, including lists of investments held, to stockholders.
Available Information. The Fund is subject to the informational requirements of
the Exchange Act and the 1940 Act and in accordance therewith is required to
file reports, proxy statements and other information with the Securities and
Exchange Commission. Any such reports, proxy statements and other information
can be inspected and copied at the public reference facilities of the Commission
at 100 F Street, N.E., Washington, D.C. 20549, the Commission's New York
Regional Office at 3 World Financial Center, Suite 400, New York, New York 10281
and its Chicago Regional Office at 175 W. Jackson Boulevard, Suite 900, Chicago,
Illinois 60604. Reports, proxy statements and other information concerning the
Fund can also be inspected at the offices of the NYSE, 20 Broad Street, New
York, New York 10005.
Additional information regarding the Fund and the Offering is contained in the
Registration Statement on Form N-2, including amendments, exhibits and schedules
thereto, relating to the Offering filed by the Fund with the Securities and
Exchange Commission. This prospectus does not contain all of the information set
forth in the Registration Statement, including any amendments, exhibits and
schedules thereto. For further information with respect to the Fund and the
Shares offered hereby, reference is made to the Registration Statement.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.
A copy of the Registration Statement may be inspected without charge at the
Securities and Exchange Commission's principal office in Washington, D.C., and
copies of all or any part thereof may be obtained from the Commission upon the
payment of certain fees prescribed by the Commission. The Commission maintains a
website (http://www.sec.gov) that contains the Registration Statement, other
documents incorporated by reference, and other information the Fund has filed
electronically with the Commission, including proxy statements and reports filed
under the Exchange Act.
DIVIDENDS AND DISTRIBUTIONS
Managed Distribution Policy. The Fund has adopted the Distribution Policy. Under
the Distribution Policy, the Fund presently pays a monthly distribution of
$0.115 per Share to the Fund's Common Stockholders. All monthly payments are
subject to the Board's right to suspend, modify, or terminate the Distribution
Policy at any time. A "managed distribution" is a regular dividend paid to
Common Stockholders from the Fund's net investment income, capital gains and/or
a return of capital.
Generally, distributions under the Distribution Policy will consist mostly of a
return-of-capital. Distributions may have a small component of net investment
income, but the exact tax characteristics of the distributions is not known
until the Fund's fiscal year-end (e.g., November 30 of each year). A "return of
capital" represents a return of a Common Stockholder's original investment in
the Shares, and should not be confused with a dividend yield. To explain
further, a "return of capital" is what the term implies, a return of Common
Stockholders' capital investment in the Fund. A return of capital generally is
not taxable. It is not considered "yield," or "income," or "capital gains,"
items which are taxable. When Common Stockholders receive a return of capital,
they are getting back part of their investment and consequently the return of
their already-taxed capital investment is tax free to the Common Stockholders.
Currently, the Fund does not expect that distributions will include any capital
gain component. In addition, it is possible that a portion of the distributions
will represent capital gains earned by the Fund but offset by capital loss
carry-forwards, which will be taxable at ordinary income tax rates. To the
extent Common Stockholders receive a return of capital they will be required to
adjust their cost basis by the same amount upon the sale of their Shares. This
adjustment to their cost basis in Shares means that, when Common Stockholders
decide to sell Shares in the Fund, they will have a larger capital gain (or
smaller capital loss) than prior to the implementation of the Distribution
Policy. This may have negative tax consequences, and Common Stockholders should
seek their own tax advice regarding the reporting of income and the gain or loss
on the sale of the Shares. Common Stockholders should note the following
important factors concerning the Distribution Policy:
* Distributions, if any, may include return of capital to the extent the
Fund's net investment income and net capital gain are insufficient to
meet the fixed distribution amount paid to Common Stockholders.
* The Board may suspend or terminate the Distribution Policy at any time
and such suspension or termination may have an adverse effect on the
market price of the Shares.
* Common Stockholders are responsible for tracking and, if necessary,
adjusting their cost basis of Shares should they receive a
distribution which includes a return of capital as indicated on their
tax form(s).
* The tax characteristic of the distributions and exactly how much is
net investment income, ordinary income, capital gains, if any, and
return of capital, if any, will be indicated on their IRS Form
1099-DIV.
* The policy of paying out a managed distribution could have the effect
of shrinking the assets of the Fund if the Fund's total investment
return is less than that of the monthly distribution.
Rights holders who exercise their Rights will receive newly issued Shares within
fifteen (15) days of the record date of the most recent monthly payment under
the Distribution Policy, which record date may occur during the Subscription
Period. Common Stockholders who receive newly issued Common Stock in the
Offering will not receive a distribution under the Distribution Policy with
respect to such newly issued Common Stock for the record date immediately prior
to issuance of the newly issued Shares. Common Stockholders will be entitled to
receive monthly distributions for record dates subsequent to their receipt of
newly issued Common Stock in accordance with the Distribution Policy. The
Offering will not impact the distributions to be paid to current holders of
Common Stock regardless of whether they exercise or sell their Rights or allow
their exercised Rights to lapse, subject to suspension, termination, or
modification of the Distribution Policy by the Board at any time.
Dividend Reinvestment Plan. The Fund has adopted a Dividend Reinvestment
Program, or "DRIP program," whereby participating Common Stockholders may
reinvest their dividends back into the Fund. The DRIP plan allows Common
Stockholders to build their Shares in the Fund automatically with each dividend
payment. If the Shares are trading at a discount to net asset value at the time
of the dividend payment, the Plan Agent will arrange to buy Shares on the open
market as long as the Shares remain at a discount. If the market price of the
Shares trade at or above the net asset value, then the Fund will issue new
Shares at the greater of net asset value or 95% of the market price per Share on
the payment date.
The DRIP program is available to all registered Stockholders; that is,
stockholders who hold stock in their own name, and not held in street name
through a brokerage firm. Registered holders will automatically be enrolled in
the DRIP plan. Therefore, Common Stockholders who are registered stockholders,
and do not wish to participate, must contact the Plan Agent by phone or by mail,
and request that dividends be paid in cash, rather than in Shares. Most Common
Stockholders hold their stock through a brokerage firm, which means Shares are
held in "street name." Common Stockholders who hold Shares in street name, may
participate in the DRIP program only if their brokerage firm permits
participation.
CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company serves as the Fund's co-administrator and
custodian and will maintain custody of the securities and cash of the Fund. PFPC
Inc. serves as the transfer agent of the Fund. Deutsche Bank Trust Company
Americas will serve as Auction Agent, transfer agent, dividend paying agent and
registrar for the AMPS.
LEGAL MATTERS
Certain legal matters in connection with the Offering will be passed on by Paul,
Hastings, Janofsky & Walker LLP, Los Angeles, California ("Paul Hastings"),
counsel to the Fund in connection with the Offering, and Venable LLP, Baltimore,
Maryland. Paul Hastings may rely on the opinion of Venable LLP as to certain
matters of Maryland law.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The data in the "Financial Highlights" section of this prospectus are based upon
[financial statements for the 6 months ending May 31, 2007, that have not been
audited and] financial statements for the year ending November 30, 2006, that
have been audited by Deloitte & Touche LLP, the Fund's independent registered
public accounting firm, located at 555 17th Street, Denver, Colorado, as
indicated in their report with respect thereto, and are incorporated by
reference herein in reliance on their report given on their authority as experts
in auditing and accounting.
ADDITIONAL INFORMATION
The prospectus and the SAI do not contain all of the information set forth in
the Registration Statement that the Fund has filed with the Securities and
Exchange Commission. The complete Registration Statement may be obtained from
the Securities and Exchange Commission upon payment of the fee prescribed by its
rules and regulations. The SAI can be obtained without charge by calling (877)
561-7914. Statements contained in this prospectus as to the contents of any
contract or other documents referred to are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement of which this prospectus forms
a part, each such statement being qualified in all respects by such reference.
PRIVACY PRINCIPLES OF THE FUND
The Fund has established the following policy regarding information about the
Fund's stockholders:
Privacy Statement. Pursuant to SEC Regulation S-P (Privacy of Consumer
Financial Information) the Directors of the Fund, BTF and FF (the "Boulder
Funds") have established the following policy regarding information about
the Boulder Funds' stockholders. We consider all stockholder data to be
private and confidential, and we hold ourselves to the highest standards in
its safekeeping and use.
General Statement. The Boulder Funds may collect nonpublic information
(e.g., name, address, email address, Social Security Number, Boulder Fund
holdings (collectively, "Personal Information")) about stockholders from
transactions in Boulder Fund shares. The Boulder Funds will not release
Personal Information about current or former stockholders (except as
permitted by law) unless one of the following conditions is met: (i) we
receive prior written consent from the relevant stockholder; (ii) we
believe the recipient to be such stockholder or its authorized
representative; (iii) to service or support the business functions of the
Boulder Funds (as explained in more detail below), or (iv) we are required
by law to release Personal Information to the recipient. The Boulder Funds
have not and will not in the future give or sell Personal Information about
their current or former stockholders to any company, individual, or group
(except as permitted by law) and as otherwise provided in this policy.
In the future, the Boulder Funds may make certain electronic services
available to their stockholders and may solicit a stockholder's email
address and contact such stockholder by email, telephone or U.S. mail
regarding the availability of such services. The Boulder Funds may also
contact stockholders by email, telephone or U.S. mail in connection with
these services, such as to confirm enrollment in electronic stockholder
communications or to update a stockholder's Personal Information. In no
event will the Boulder Funds transmit a stockholder's Personal Information
via email without consent.
Use of Personal Information. The Boulder Funds will only use Personal
Information (i) as necessary to service or maintain stockholder accounts in
the ordinary course of business and (ii) to support business functions of
the Boulder Funds and their affiliated businesses. This means that the
Boulder Funds may share certain Personal Information, only as permitted by
law, with affiliated businesses of the Boulder Funds, and that such
information may be used for non-Boulder-Fund-related solicitation. When
Personal Information is shared with the Boulder Funds' business affiliates,
the Boulder Funds may do so without providing the stockholders the option
of preventing these types of disclosures as permitted by law.
Safeguards Regarding Personal Information. Internally, we also restrict
access to Personal Information to those who have a specific need for the
records. We maintain physical, electronic, and procedural safeguards that
comply with Federal standards to guard Personal Information. Any doubts
about the confidentiality of Personal Information, as required by law, are
resolved in favor of confidentiality. The Boulder Funds and their Service
Providers restrict access to non-public personal information about its
stockholders to employees of the Boulder Funds' investment advisers and
their affiliates with a legitimate business need for the information. The
Boulder Funds maintain physical, electronic and procedural safeguards
designed to protect the non-public personal information of their
stockholders. For more information about the Boulder Funds' privacy
policies, please visit http://www.boulderfunds.net.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION CAN NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUND OR THE FUND'S ADVISERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE
SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SHARES OF COMMON STOCK BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE FACTS AS SET FORTH IN THE PROSPECTUS OR IN THE AFFAIRS OF THE FUND
SINCE THE DATE HEREOF.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
THE FUND...............................................................................................................1
USE OF PROCEEDS........................................................................................................2
INVESTMENT OBJECTIVE AND POLICIES......................................................................................2
INVESTMENT POLICIES AND RESTRICTIONS...................................................................................3
INVESTMENT POLICIES AND TECHNIQUES.....................................................................................4
MANAGEMENT OF THE FUND.................................................................................................10
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS........................................................................10
OWNERSHIP OF THE FUND BY DIRECTORS.....................................................................................11
DIRECTOR AND OFFICER COMPENSATION......................................................................................11
COMMITTEES OF THE BOARD OF DIRECTORS...................................................................................12
INVESTMENT ADVISERS AND OTHER SERVICE PROVIDERS........................................................................14
COMPENSATION TO THE ADVISERS AND ADMINISTRATORS........................................................................16
DURATION AND TERMINATION OF THE INVESTMENT ADVISORY AGREEMENTS.........................................................17
POTENTIAL CONFLICTS OF INTEREST........................................................................................17
PROXY VOTING...........................................................................................................17
CODE OF ETHICS.........................................................................................................18
PORTFOLIO TRANSACTIONS, BROKERAGE ALLOCATION AND OTHER PRACTICES.......................................................18
REPURCHASE OF SHARES...................................................................................................19
FEDERAL INCOME TAX MATTERS.............................................................................................20
PERFORMANCE-RELATED, COMPARATIVE AND OTHER INFORMATION.................................................................24
FINANCIAL STATEMENTS...................................................................................................25
ADDITIONAL INFORMATION.................................................................................................25
Appendix A - Proxy Voting Policies and Procedures
BOULDER GROWTH & INCOME FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
Boulder Growth & Income Fund, Inc. (the "Fund") is a closed-end, non-diversified
management investment company. This Statement of Additional Information does not
constitute a prospectus, but should be read in conjunction with the prospectus
relating hereto dated __________, 2007 (the "Prospectus"). This Statement of
Additional Information does not include all information that a prospective
investor should consider before participating in the rights offering (the
"Offering") described in the Prospectus or otherwise purchasing the Fund's
common stock. A copy of the Prospectus may be obtained without charge by calling
the Fund's co-administrator (Fund Administrative Services, LLC) at (877)
561-7914. You may also obtain a copy of the Prospectus on the Securities and
Exchange Commission's website (http://www.sec.gov). Capitalized terms used but
not defined in this Statement of Additional Information have the meanings given
to them in the Prospectus.
THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND
MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL THESE SECURITIES AND
IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
This Statement of Additional Information is dated _________________, 2007.
TABLE OF CONTENTS
THE FUND 1
USE OF PROCEEDS 2
INVESTMENT OBJECTIVE AND POLICIES 2
INVESTMENT POLICIES AND RESTRICTIONS 3
INVESTMENT POLICIES AND TECHNIQUES 4
MANAGEMENT OF THE FUND 10
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS 10
OWNERSHIP OF THE FUND BY DIRECTORS 11
DIRECTOR AND OFFICER COMPENSATION 11
COMMITTEES OF THE BOARD OF DIRECTORS 12
INVESTMENT ADVISERS AND OTHER SERVICE PROVIDERS 14
COMPENSATION TO THE ADVISERS AND ADMINISTRATORS 16
FACTORS CONSIDERED BY THE INDEPENDENT DIRECTORS IN APPROVING THE INVESTMENT
ADVISORY AGREEMENTS __
DURATION AND TERMINATION 17
POTENTIAL CONFLICTS OF INTEREST 17
PROXY VOTING 17
CODE OF ETHICS 18
PORTFOLIO TRANSACTIONS, BROKERAGE ALLOCATION AND OTHER PRACTICES 18
REPURCHASE OF SHARES 19
FEDERAL INCOME TAX MATTERS 20
PERFORMANCE-RELATED, COMPARATIVE AND OTHER INFORMATION 24
FINANCIAL STATEMENTS 25
ADDITIONAL INFORMATION 25
THE FUND
From its inception in 1972 until 2002, the Fund was called USLife Income Fund,
Inc. (the "Predecessor Fund"). The Predecessor Fund was managed to provide "a
high level of current income," was virtually 100% invested in corporate bonds
and was classified as a diversified fund under the Investment Company Act of
1940, as amended (the "1940 Act"). At a special stockholder meeting held in
April 2002, stockholders approved changes in the Fund's name, in the investment
objective to "total return" and in the Fund's classification from diversified to
non-diversified, and eliminated or changed certain of the Fund's fundamental
investment policies. See "Fundamental Policies" below. After the Fund
implemented these changes, the Fund's advisers liquidated a substantial portion
of the Fund's bond portfolio. As of _______________, 2007, none of the Fund's
assets were invested in bonds.
USE OF PROCEEDS
The proceeds of the Offering will be invested in accordance with the Fund's
investment objective and policies as soon as practicable. The Advisers (defined
below) anticipate that they will be able to invest substantially all of the net
proceeds of the Offering within approximately six months after completion of the
Offering. Pending such investment, the Fund anticipates investing the proceeds
in short-term securities issued by the U.S. government or its agencies or
instrumentalities or in high quality, short-term or long-term debt obligations
or money market instruments. The increase in assets as a result in the Offering
may also be used to help the Fund maintain its managed distribution policy. This
policy permits holders of the Fund's common stock to realize a predictable, but
not assured, level of cash flow and some liquidity periodically with respect to
their common stock without having to sell shares.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is total return. The Fund seeks to produce both
income and long-term capital appreciation by investing in a portfolio of equity
and debt securities. The Fund invests primarily in common stocks, including
dividend paying common stocks such as those issued by utilities, real estate
investment trusts ("REITs") and registered investment companies ("RICs"). The
Fund also invests in fixed income securities such as U.S. government securities,
preferred stocks and bonds. The Fund invests primarily in securities of
U.S.-based companies and to a lesser extent in foreign equity securities and
sovereign debt, in each case denominated in foreign currency. The Fund has no
restrictions on its ability to invest in foreign securities. The Fund is
concentrated in Real Estate Related Companies, which means it must invest more
than 25% of its total assets in REITs or the equity or debt securities of
companies in or primarily servicing the real estate industry or deriving a
substantial portion of their revenue from, or having a substantial portion of
their assets invested in, real estate. No assurance can be given that the Fund
will achieve its investment objective.
The Fund is a "non-diversified" investment company, as defined in the 1940 Act,
which means that it is permitted to invest its assets in a more limited number
of issuers than "diversified" investment companies. A diversified company may
not, with respect to 75% of its total assets, invest more than 5% of its total
assets in the securities of any one issuer and may not own more than 10% of the
outstanding voting securities of any one issuer. However, under Subchapter M of
the Internal Revenue Code of 1986, as amended (the "Code"), (A) not more than
25% of the Fund's total assets may be invested in securities of any one issuer
(other than U.S. government securities and RICs) or of any two or more issuers
controlled by the Fund which may be deemed to be engaged in the same, similar or
related trades or businesses, and (B) with respect to 50% of the total value of
the Fund's portfolio, (i) the Fund must limit to 5% the portion of its assets
invested in the securities of a single issuer (other than U.S. government
securities and RICs), and (ii) the Fund may not own more than 10% of the
outstanding voting securities of any one issuer (other than U.S. government
securities and RICs). The Fund intends to concentrate its common stock
investments in a few issuers and to take large positions in those issuers,
consistent with being a "non-diversified" fund. As a result, the Fund may be
subject to a greater risk of loss than a diversified fund or a fund that has
diversified its investments more broadly. Taking larger positions is also likely
to increase the volatility of the Fund's net asset value, reflecting fluctuation
in the value of large Fund holdings.
Under normal market conditions, the Fund intends to invest at least 80% of its
net assets in common stocks, primarily domestic common stocks and secondarily in
foreign common stocks denominated in foreign currencies. The Fund's investments
in common stocks may include, but is not limited to, RICs whose objective is
income, REITs, and other dividend-paying common stocks. The portion of the
Fund's assets that are not invested in common stocks may be invested in fixed
income securities, cash equivalents and other income-producing securities. The
term "fixed income securities" includes, but is not limited to, corporate bonds,
U.S. government securities, notes, bills, debentures, preferred stocks,
convertible securities, bank debt obligations, repurchase agreements and
short-term money market obligations.
The portion of the Fund's assets that are not invested in common stocks may be
invested in fixed income securities (including bonds, U.S. government
securities, notes, bills, debentures, preferred stocks, convertible securities,
bank debt obligations, repurchase agreements and short-term money market
obligations), cash equivalents and income-producing common stocks. Under normal
circumstances, the Fund will not have more than 20% of its assets in cash or
cash equivalents. The Fund may, for temporary defensive purposes, allocate a
higher portion of its assets to cash and cash equivalents. For this purpose,
cash equivalents consist of, but are not limited to, short-term (less than
twelve months to maturity) U.S. government securities, certificates of deposit
and other bank obligations, investment grade corporate bonds other debt
instruments and repurchase agreements.
INVESTMENT POLICIES AND RESTRICTIONS
INDUSTRY CONCENTRATION POLICY. The Fund has adopted a concentration policy
pursuant to which it must, under normal market conditions, invest more than 25%
of its total assets in Real Estate Related Companies. The Fund must obtain
stockholder approval prior to changing this policy. Real Estate Related
Companies include, but are not limited to: REITs and other closed-end registered
investment companies that invest primarily in REITs; home builders; real estate
developers; property management companies; real estate brokerage companies;
commercial and industrial construction companies; financial companies who make
or service real estate mortgages and/or construction loans; title, homeowners
and builders risk insurance companies; manufacturers, distributors and retailers
of construction materials and/or building supplies; lumber, paper, forest
products, and other companies with significant real estate holdings; holding
companies of any of these companies; and any other companies that the Fund's
advisers reasonably determine are "real estate related companies". Although the
Fund may invest in Real Estate Related Companies of any size, it currently
intends to invest in such companies with market capitalizations of greater than
$500 million. Although the Fund generally invests in U.S.-based Real Estate
Related Companies, such companies may invest directly or indirectly in non-U.S.
properties, and the Fund may make direct investments in foreign Real Estate
Related Companies.
FUNDAMENTAL POLICIES. A number of the Fund's investment policies, listed below,
are "fundamental" policies (the "Fundamental Policies"), which means that the
policies may not be changed without the approval of the holders of a majority of
the Fund's outstanding voting securities (which for this purpose and under the
1940 Act means the lesser of (i) 67% of the shares represented at a meeting at
which more than 50% of the outstanding shares are represented or (ii) more than
50% of the outstanding shares). The Fund may not:
1. Issue any senior securities except as permitted under the 1940 Act.
2. Invest in the securities of companies conducting their principal
business activity in the same industry if, immediately after such
investment, the value of its investments in such industry would exceed
25% of the value of its total assets; provided that this limitation
will not apply to Real Estate Related Companies.
3. Participate on a joint or a joint and several basis in any trading
account in securities, except that the Fund may, to the extent
permitted by rules, regulations or orders of the SEC, combine orders
with others for the purchases and sales of securities in order to
achieve the best overall execution.
4. Purchase or sell interests in oil, gas or other mineral exploration or
development programs.
5. Purchase or sell real estate, except that the Fund may purchase or
sell REITs and securities secured by real estate or interests therein
issued by companies owning real estate or interests therein.
6. Purchase or sell commodities or commodity contracts.
7. Make loans other than through the purchase of debt securities in
private placements and the loaning of portfolio securities.
8. Borrow money in an amount exceeding the maximum permitted under the
1940 Act.
9. Underwrite securities of other issuers, except insofar as it may be
deemed to be an underwriter in selling a portfolio security which may
require registration under the Securities Act of 1933.
10. Invest more than 30% of the value of its total assets in securities
which have been acquired through private placements.
11. Purchase or retain the securities of any issuer, if, to the Fund's
knowledge, those officers and directors of the Fund or its investment
adviser who individually own beneficially more than 1/2 of 1% of the
outstanding securities of such issuer, together own beneficially more
than 5% of such outstanding securities.
12. Pledge, mortgage or hypothecate its assets except in connection with
permitted borrowing and to the extent related to transactions in which
the Fund is authorized to engage.
With the exception of the Fund's investment objective (i.e., total return),
Concentration Policy and Fundamental Policies, all other policies, statements,
objectives, terms and conditions may be changed by the Fund's Board of Directors
(the "Board") without stockholder approval.
INVESTMENT POLICIES AND TECHNIQUES
The following information supplements the discussion of the Fund's investment
objective, policies and techniques that are described in the Prospectus.
PORTFOLIO INVESTMENTS. Under normal market conditions, the Fund intends to
invest at least 80% of its net assets in common stocks, primarily domestic
common stocks and secondarily in foreign common stocks denominated in foreign
currencies. The Fund's investments in common stocks may include, but is not
limited to, RICs whose objective is income, REITs, and other dividend-paying
common stocks. The portion of the Fund's assets that are not invested in common
stocks may be invested in fixed income securities, cash equivalents and other
income-producing securities. The term "fixed income securities" includes but is
not limited to corporate bonds, U.S. government securities, notes, bills,
debentures, preferred stocks, convertible securities, bank debt obligations,
repurchase agreements and short-term money market obligations.
COMMON STOCKS. The Fund may invest all or any portion of its assets in common
stock. Common stock is defined as shares of a corporation that entitle the
holder to a pro rata share of the profits of the corporation, if any, without
preference over any other stockholder or class of stockholders, including
holders of the corporation's preferred stock and other senior equity. Common
stock usually carries with it the right to vote and frequently an exclusive
right to do so. Holders of common stock also have the right to participate in
the assets of the corporation upon liquidation after all other claims are paid
or provided for.
In selecting common stocks for investment, the Fund expects to focus primarily
on U.S.-based companies and secondarily on the common stock of foreign companies
denominated in foreign currencies. The Fund is permitted to invest without
limitation in companies outside the U.S. Generally, target companies will have
consistent high returns on equity, while using modest amounts of debt relative
to their industries. The Fund seeks investments in businesses which the Fund's
investment advisers, Boulder Investment Advisers, LLC ("BIA") and Stewart West
Indies Trading Company, Ltd. d/b/a Stewart Investment Advisers ("SIA")
(collectively the "Advisers"), understand, which have fairly predictable and
improving future earnings, and most importantly, are priced reasonably relative
to the businesses' earnings and anticipated growth in earnings. The Fund will
not necessarily focus its investments in "large-cap", "mid-cap" or "small-cap"
companies since the Advisers believe it would be unwise to impose such
investment limitations.
Investments in small or middle capitalization companies involve greater risk
than is customarily associated with larger, more established companies due to
the greater business risks of small size, limited markets and financial
resources, narrow product lines and the frequent lack of depth of management.
The securities of small or medium-sized companies are often traded
over-the-counter, and may not be traded in volumes typical of securities traded
on a national securities exchange. Consequently, the securities of smaller
companies may have limited market stability and may be subject to more abrupt or
erratic market movements than securities of larger, more established companies
or the market averages in general.
When the Fund makes an investment in a common stock, it will likely make a
significant investment and typically hold it for a long period of time. In the
long run, the Fund believes that value investing produces superior total
returns. However, value stocks can remain undervalued for long periods of time
and may never reach what the Advisers believe are their full intrinsic values,
or, as with any security may decline in value. In addition, value stocks may
fall out of favor with investors and may under-perform growth stocks during
given periods.
REAL ESTATE INVESTMENT TRUSTS. As a matter of investment policy, the Fund is
concentrated in Real Estate Related Companies, which means it will, under normal
market conditions, invest more than 25% of its total assets in such companies.
The Fund must obtain stockholder approval prior to changing this policy. Real
Estate Investment Trusts or REITs are included in the definition of Real Estate
Related Companies and comprise a substantial portion of the Fund's assets. REITs
invest primarily in commercial real estate or real estate-related loans. A REIT
is not taxed on income distributed to its stockholders or unit-holders if it
complies with regulatory requirements relating to its organization, ownership,
assets and income, and with a regulatory requirement that it distribute to its
stockholders or unit-holders at least 90% of its taxable income for each taxable
year. Generally, REITs can be classified as equity REITs, mortgage REITs and
hybrid REITs. Equity REITs invest the majority of their assets directly in real
property and derive their income primarily from rents and capital gains from
appreciation realized through property sales. Mortgage REITs invest the majority
of their assets in real estate mortgages and derive their income primarily from
interest payments. Hybrid REITs combine the characteristics of both equity and
mortgage REITs. By investing in REITs indirectly through the Fund, stockholders
will bear not only the proportionate share of the expenses of the Fund, but
also, indirectly, similar expenses of underlying REITs. The Fund invests in
REITs primarily for income.
The Fund may be subject to certain risks associated with the direct investments
of the REITs. REITs may be affected by changes in their underlying properties
and by defaults by borrowers or tenants. Mortgage REITs may be affected by the
quality of the credit extended. Furthermore, REITs are dependent on specialized
management skills. Some REITs may have limited diversification and may be
subject to risks inherent in financing a limited number of properties. REITs
depend generally on their ability to generate cash flow to make distributions to
stockholders or unit-holders, and may be subject to defaults by borrowers and to
self-liquidations. In addition, a REIT may be affected by its failure to qualify
for tax-free pass-through of income under the Code or its failure to maintain
exemption from registration under the 1940 Act.
REGISTERED INVESTMENT COMPANIES. The Fund may invest in securities issued by
RICs subject to such limitations, restrictions and conditions as imposed by
Federal law. The common stock of closed-end RICs can trade at a substantial
discount to the underlying net asset value of the RIC, and the Fund may, from
time to time, invest in common stocks issued by RICs when they are trading at
discounts or when the Advisers otherwise deem market conditions appropriate. The
Fund intends to normally invest in RICs that pay dividends. RICs that pay
regular dividends typically own interest rate sensitive securities, which tend
to increase in value when interest rates decline, and decrease in value when
interest rates increase. To the extent that the Fund invests in RICs, the Fund's
stockholders will incur expenses with respect to both the Fund and that portion
of the Fund's assets invested in other RICs. However, as common stocks of
closed-end RICs can trade at substantial discounts to their underlying net asset
values, the Advisers may deem the underlying expense of investing in a
particular RIC to have minimal impact when compared to the discount at which the
Fund may buy their shares. The net asset value and market value of common stock
issued by RICs will fluctuate with the value of the underlying assets. The Fund
may invest in the auction market preferred stock of other closed-end funds
primarily as a means of investing the Fund's cash for the short-term in higher
yielding alternatives to repurchase agreements or US treasury securities. The
Fund will consider investing cash in these instruments, and other short-term
money market type alternatives, when the yield spread is adequately attractive
over repurchase agreements and US treasuries. The Fund generally will invest in
auction market preferred stocks that are rated AAA although it may invest in
lower rated securities from time to time.
Prior to July 31, 2006, the Fund was restricted from investing more than 10% of
its total assets in other RICs. However, effective July 31, 2006, new rules
under the 1940 Act lifted these restrictions such that the Fund may now invest
more than 10% of its assets in other RICs with certain restrictions including:
(i) a 3% limitation on acquiring the total outstanding voting shares of any
other single RIC, (ii) voting shares of acquired RICs in accordance with certain
stockholder principles, and (iii) not acquiring shares of other RICs with the
purpose of requiring the acquired RIC to redeem greater than one percent of that
RIC's outstanding shares in a period of less than 30 days. As a result of these
changes to the 1940 Act rules, and consistent with the Fund's investment
objectives, the Fund may invest a greater percentage of its assets in RICs
subject to any restrictions or limitations imposed by Federal law.
BONDS. Prior to April 26, 2002, the Fund was called USLife Income Fund, Inc. and
was virtually 100% invested in corporate bonds. Since the Fund changed its
investment objective on April 26, 2002, the Advisers have liquidated all of the
Fund's bond portfolio. As of _______, 2007, none of the Fund's assets were
invested in bonds.
Bonds, or fixed income securities, are debt obligations issued by the U.S.
government and its agencies, corporations, municipalities and other borrowers.
The market values of fixed income investments will change in response to
interest rate changes and other factors. During periods of falling interest
rates, the values of outstanding fixed income securities generally rise.
Conversely, during periods of rising interest rates, the values of such
securities generally decline. Changes by recognized rating agencies in the
rating of any fixed income security and in the ability of an issuer to make
payments of interest and principal also affect the value of these investments.
Changes in the value of portfolio securities will not necessarily affect cash
income derived from these securities, but will affect the Fund's net asset
values.
Corporations issue bonds and notes to raise money for working capital or for
capital expenditures such as plant construction, equipment purchases and
expansion. In return for the money loaned to the corporation, the corporation
promises to pay bondholders interest and to repay the principal amount of the
bond or note.
PREFERRED STOCKS. The Fund may invest in preferred securities. Preferred
securities are equity securities, but they typically have many characteristics
of fixed income securities, such as a fixed dividend payment rate and/or a
preference over the issuer's common shares as to the payment of dividends and/or
the distribution of assets upon liquidation. However, because preferred stocks
are equity securities, they may be more susceptible to risks traditionally
associated with equity investments than fixed income securities. Unlike common
stock, preferred securities typically do not have general voting rights.
Fixed rate preferred stocks have fixed dividend rates. They can be perpetual,
with no mandatory redemption date, or issued with a fixed mandatory redemption
date. Certain issues of preferred stock are convertible into other equity
securities. Perpetual preferred stocks provide a fixed dividend throughout the
life of the issue, with no mandatory retirement provisions, but may be callable.
Sinking fund preferred stocks provide for the redemption of a portion of the
issue on a regularly scheduled basis with, in most cases, the entire issue being
retired at a future date. The value of fixed rate preferred stocks can be
expected to vary inversely with interest rates. Adjustable rate preferred stocks
have a variable dividend rate which is determined periodically, typically
quarterly, according to a formula based on a specified premium or discount to
the yield on particular U.S. Treasury securities, typically the highest
base-rate yield of one of three U.S. Treasury securities: the 90-day Treasury
bill; the 10-year Treasury note; and either the 20-year or 30-year Treasury bond
or other index. The premium or discount to be added to or subtracted from this
base-rate yield is fixed at the time of issuance and cannot be changed without
the approval of the holders of the adjustable rate preferred stock. Some
adjustable rate preferred stocks have a maximum and a minimum rate and in some
cases are convertible into common stock.
Auction rate preferred stocks pay dividends that adjust based on periodic
auctions. Such preferred stocks are similar to short-term corporate money market
instruments in that an auction rate preferred stockholder has the opportunity to
sell the preferred stock at par in an auction, normally conducted at least every
49 days, through which buyers set the dividend rate in a bidding process for the
next period. The dividend rate set in the auction depends on market conditions
and the credit quality of the particular issuer. Typically, the auction rate
preferred stock's dividend rate is limited to a specified maximum percentage of
an external commercial paper index as of the auction date. Further, the terms of
the auction rate preferred stocks generally provide that they are redeemable by
the issuer at certain times or under certain conditions.
The Fund may, from time to time, invest in preferred securities that are rated,
or whose issuer's senior debt is rated, investment grade by Moody's and Standard
& Poor's ("S&P") at the time of investment, although the Fund is not limited to
investments in investment grade preferred securities. In addition, the Fund may
acquire unrated issues that the Advisers deem to be comparable in quality to
rated issues in which the Fund is authorized to invest.
MONEY MARKET INSTRUMENTS. Under normal conditions, the Fund may hold up to 20%
of its assets in cash or money market instruments. The Fund intends to invest in
money market instruments pending investments in common stocks, to serve as
collateral in connection with certain investment techniques, and to hold as a
reserve pending the payment of dividends to investors. When the Advisers believe
that economic circumstances warrant a temporary defensive posture, the Fund may
invest without limitation in short-term money market instruments.
Money market instruments that the Fund may acquire will be securities rated in
the highest short-term rating category by Moody's Investors Service ("Moody's")
or S&P or the equivalent from another major rating service, securities of
issuers that have received such ratings with respect to other short-term debt or
comparable unrated securities. Money market instruments in which the Fund
typically expects to invest include: U.S. government securities; bank
obligations (including certificates of deposit, time deposits and bankers'
acceptances of U.S. or foreign banks); commercial paper rated P-l by Moody's or
A-1 by S&P and repurchase agreements.
REPURCHASE AGREEMENTS. The Fund may invest temporarily, without limitation, in
repurchase agreements, which are agreements pursuant to which securities are
acquired by the Fund from a third party with the understanding that they will be
repurchased by the seller at a fixed price on an agreed date. These agreements
may be made with respect to any of the portfolio securities in which the Fund is
authorized to invest. Repurchase agreements may be characterized as loans
secured by the underlying securities. The Fund may enter into repurchase
agreements with (i) member banks of the Federal Reserve System having total
assets in excess of $500 million and (ii) securities dealers, provided that such
banks or dealers meet certain creditworthiness standards. The resale price
reflects the purchase price plus an agreed upon market rate of interest which is
unrelated to the coupon rate or date of maturity of the purchased security. The
collateral is marked to market daily. Such agreements permit the Fund to keep
all its assets earning interest while retaining "overnight" flexibility in
pursuit of investments of a longer term nature.
The use of repurchase agreements involves certain risks. For example, if the
seller of securities under a repurchase agreement defaults on its obligation to
repurchase the underlying securities, as a result of its bankruptcy or
otherwise, the Fund will seek to dispose of such securities, which action could
involve costs or delays. If the seller becomes insolvent and subject to
liquidation or reorganization under applicable bankruptcy or other laws, the
Fund's ability to dispose of the underlying securities may be restricted.
Finally, it is possible that the Fund may not be able to substantiate its
interest in the underlying securities. To minimize this risk, the securities
underlying the repurchase agreement will be held by the custodian at all times
in an amount at least equal to the repurchase price, including accrued interest.
If the seller fails to repurchase the securities, the Fund may suffer a loss to
the extent proceeds from the sale of the underlying securities are less than the
repurchase price.
GOVERNMENT SECURITIES. The Fund may invest in securities that include direct
obligations of the United States and obligations issued by U.S. government
agencies and instrumentalities ("Government Securities"). Included among direct
obligations of the United States are Treasury bills, Treasury notes and Treasury
bonds, which differ principally in terms of their maturities. Securities issued
by U.S. government agencies and instrumentalities are: securities that are
supported by the full faith and credit of the United States (such as Government
National Mortgage Association certificates); securities that are supported by
the right of the issuer to borrow from the U.S. Treasury (such as securities of
Federal Home Loan Banks); and securities that are supported by the credit of the
instrumentality (such as Federal National Mortgage Association and Federal Home
Loan Mortgage Corporation bonds). No assurance can be given that the U.S.
government will provide financial support in the future to U.S. government
agencies, authorities or instrumentalities that are not supported by the full
faith and credit of the United States. Securities guaranteed as to principal and
interest by the U.S. government, its agencies, authorities or instrumentalities
include (i) securities for which the payment of principal and interest is backed
by an irrevocable letter of credit issued by the U.S. government or any of its
agencies, authorities or instrumentalities; and (ii) participations in loans
made to non-U.S. governments or other entities that are so guaranteed. The
secondary market for certain of these participations is limited and therefore
may be regarded as illiquid.
ZERO COUPON SECURITIES. The Fund may invest up to 10% of its total assets in
zero coupon securities issued by the U.S. government, its agencies or
instrumentalities as well as custodial receipts or certificates underwritten by
securities dealers or banks that evidence ownership of future interest payments,
principal payments or both on certain government securities. Zero coupon
securities pay no cash income to their holders until they mature and are issued
at substantial discounts from their value at maturity. When held to maturity,
their entire return comes from the difference between their purchase price and
their maturity value. Because interest on zero coupon securities is not paid on
a current basis, the values of securities of this type are subject to greater
fluctuations than are the values of securities that distribute income regularly
and may be more speculative than such securities. Accordingly, the values of
these securities may be highly volatile as interest rates rise or fall. In
addition, the Fund's investments in zero coupon securities will result in
special tax consequences. Although zero coupon securities do not make interest
payments, for tax purposes a portion of the difference between a zero coupon
security's maturity value and its purchase price is taxable income of the Fund
each year.
Custodial receipts evidencing specific coupon or principal payments have the
same general attributes as zero coupon Government Securities but are not
considered to be Government Securities. Although typically under the terms of a
custodial receipt the Fund is authorized to assert its rights directly against
the issuer of the underlying obligation, the Fund may be required to assert
through the custodian bank such rights as may exist against the underlying
issuer. Thus, in the event the underlying issuer fails to pay principal and/or
interest when due, the Fund may be subject to delays, expenses and risks that
are greater than those that would have been involved if the Fund had purchased a
direct obligation of the issuer. In addition, in the event that the trust or
custodial account in which the underlying security has been deposited is
determined to be an association taxable as a corporation, instead of a
non-taxable entity, the yield on the underlying security would be reduced in
respect of any taxes paid.
BORROWINGS. The Fund reserves the right to borrow funds to the extent permitted
by its Fundamental Policies. See "Fundamental Policies" above. The proceeds of
borrowings may be used for any valid purpose, including, without limitation,
liquidity, investing and repurchases of capital stock of the Fund. The Fund may
borrow money only in an amount up to one-third of the value of the Fund's total
assets. Borrowing is a form of leverage and, in that respect, entails risks,
including volatility in net asset value, market value and income available for
distribution.
LENDING OF SECURITIES. The Fund is authorized to lend securities it holds to
brokers, dealers and other financial organizations. Loans of the Fund's
securities, if and when made, may not exceed 33-1/3% of the Fund's total assets.
The Fund's loans of securities will be collateralized by cash, letters of credit
or Government Securities that will be maintained at all times in a segregated
account with the Fund's custodian in an amount at least equal to the current
market value of the loaned securities.
By lending its portfolio securities, the Fund can increase its income by
continuing to receive interest on the loaned securities, by investing the cash
collateral in short-term instruments or by obtaining yield in the form of
interest paid by the borrower when Government Securities are used as collateral.
The risk in lending portfolio securities, as with other extensions of credit,
consists of the possible delay in recovery of the securities or the possible
loss of rights in the collateral should the borrower fail financially. The Fund
will adhere to the following conditions whenever it lends its securities: (i)
the Fund must receive at least 100% cash collateral or equivalent securities
from the borrower, which will be maintained by daily marking-to-market; (ii) the
borrower must increase the collateral whenever the market value of the
securities loaned rises above the level of the collateral; (iii) the Fund must
be able to terminate the loan at any time; (iv) the Fund must receive reasonable
interest on the loan, as well as any dividends, interest or other distributions
on the loaned securities and any increase in market value; (v) the Fund may pay
reasonable fees approved by its board of directors, including, for example, fees
to (a) the custodian in connection with support of the lending activities, (b)
the loan or placing broker for arranging the securities loan, and/or (iii) the
borrower for participating in the loan transaction; and (c) voting rights on the
loaned securities may pass to the borrower, except that, if a material event
adversely affecting the investment in the loaned securities occurs, the Board
must terminate the loan and regain the Fund's right to vote the securities.
SHORT SALES AGAINST THE BOX. The Fund may make short sales of securities in
order to reduce market exposure and/or to increase its income if at all times
when a short position is open, the Fund owns an equal or greater amount of such
securities or owns preferred stock, debt or warrants convertible or exchangeable
into an equal or greater number of the shares of common stocks sold short. Short
sales of this kind are referred to as short sales "against the box." The
broker-dealer that executes a short sale generally invests the cash proceeds of
the sale until they are paid to the Fund. Arrangements may be made with the
broker-dealer to obtain a portion of the interest earned by the broker on the
investment of short sale proceeds. The Fund will segregate the securities
against which short sales against the box have been made in a special account
with its custodian. Not more than 10% of the Fund's net assets (taken at current
value) may be held as collateral for such sales at any one time.
ILLIQUID SECURITIES. The Fund may invest in illiquid securities. Historically,
illiquid securities have included securities subject to contractual or legal
restrictions on resale because they have not been registered under the 1933 Act,
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Restricted securities are
securities that may not be sold freely to the public absent registration under
the 1933 Act, or an exemption from registration. The Fund has no limitation on
the amount of its assets that may be invested in securities which are not
readily marketable or are subject to restrictions on resale, although it may not
invest more than 30% of the value of its total assets in securities which have
been acquired through private placement.
The Board has delegated the function of making day-to-day determinations of
liquidity to the Advisers pursuant to guidelines approved by the Board. The Fund
is a closed-end fund which means that managing liquidity for the purpose of
stockholder redemptions is not an issue as it might otherwise be with an
open-end fund. Accordingly, the Advisers are not constrained in this regard in
their day-to-day management of the portfolio, knowing that redemptions are not
an issue. Moreover, a majority of the securities in the Fund, both historically
and currently, are exchange-traded securities with relatively good liquidity. In
the few cases where the liquidity of certain securities is less so, the Advisers
will take into account a number of factors in reaching liquidity decisions,
including, but not limited to: (1) the frequency of trades for the security, (2)
the number of dealers willing and ready to purchase and sell the security, (3)
whether any dealers have agreed to make a market in the security, (4) the number
of other potential purchasers for the security, and (5) the nature of the
securities and the nature of the marketplace trades.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT TRANSACTIONS. The Fund may
purchase and sell securities, including Government Securities, on a when-issued,
delayed delivery or forward commitment basis. Typically, no income accrues on
securities the Fund has committed to purchase prior to the time delivery of the
securities is made, although the Fund may earn income on securities it has
segregated.
When purchasing a security on a when-issued, delayed delivery, or forward
commitment basis, the Fund assumes the rights and risks of ownership of the
security, including the risk of price fluctuations, and takes such fluctuations
into account when determining its net asset value. Because the Fund is not
required to pay for the security until the delivery date, these risks are in
addition to the risks associated with the Fund's other investments. If the Fund
remains substantially fully invested at a time when when-issued, delayed
delivery, or forward commitment purchases are outstanding, the purchases may
result in a form of leverage.
When the Fund has sold a security on a when-issued, delayed delivery, or forward
commitment basis, the Fund does not participate in future gains or losses with
respect to the security. If the other party to a transaction fails to deliver or
pay for the securities, the Fund could miss a favorable price or yield
opportunity or could suffer a loss. The Fund may dispose of or renegotiate a
transaction after it is entered into, and may sell when-issued, delayed delivery
or forward commitment securities before they are delivered, which may result in
a capital gain or loss. There is no percentage limitation on the extent to which
the Fund may purchase or sell securities on a when-issued, delayed delivery, or
forward commitment basis.
OTHER INVESTMENT TECHNIQUES AND POLICIES
AMPS LEVERAGE. The Fund is leveraged with 1,000 shares of auction market
preferred stock (the "AMPS"). The AMPS are senior to the common stock and result
in the financial leveraging of the common stock. Dividends on AMPS are
cumulative. The Fund is required to meet certain asset coverage tests with
respect to the AMPS. If the Fund fails to meet these requirements and does not
correct such failure, the Fund may be required to redeem, in part or in full,
the AMPS at a redemption price of $25,000 per share plus an amount equal to the
accumulated and unpaid dividends on such shares in order to meet these
requirements. Additionally, failure to meet the foregoing asset requirements
could restrict the Fund's ability to pay dividends to common stock stockholders
and could lead to sales of portfolio securities at inopportune times.
Nevertheless, the Fund's management believes that well-managed leverage can have
a beneficial effect on common stockholders' total return. Leverage can provide
enough additional income to pay a substantial portion of Fund expenses, if there
is enough of a positive spread between the borrowed money and the return on the
assets acquired with such monies. Use of leverage may have a number of adverse
effects on the Fund and its stockholders, including: (i) leverage may magnify
market fluctuations in the Fund's underlying holdings, thus causing a
disproportionate change in the Fund's net asset value; (ii) the Fund's cost of
leverage may exceed the return on the underlying securities acquired with the
proceeds of the leverage, thereby diminishing rather than enhancing the return
to stockholders and generally making the Fund's total return to such
stockholders more volatile; (iii) the Fund may be required to sell investments
in order to meet dividend or interest payments on the debt or preferred stock
when it may be disadvantageous to do so; and (iv) leveraging through the
issuance of preferred stock requires that the holders of the preferred stock
have class voting rights on various matters that could make it more difficult
for the holders of the common stock to change the investment objective or
fundamental policies of the Fund, to convert it to an open-end fund or make
certain other changes.
Although the Fund will focus its use of leverage on producing income, the Fund
may also purchase other income-producing securities (e.g., RICs, REITs and
dividend-paying common stocks) or non-dividend-paying common stocks for
long-term appreciation. The Fund is limited in its use of leverage to the
maximum amount permitted pursuant to Section 18 of the 1940 Act.
RISKS ASSOCIATED WITH LEVERAGE. The AMPS leverage (or any other leverage) will
create an opportunity for increased return but, at the same time, will involve
special risk considerations. Leveraging will magnify declines as well as
increases in the net asset value of the common stock and in the net return on
the Fund's portfolio. Although the principal of the Fund's AMPS is fixed, the
Fund's assets may change in value during the time the AMPS are outstanding, thus
increasing exposure to capital risk. To the extent the return derived from the
assets obtained with the AMPS proceeds exceeds the interest and other expenses
that the Fund will have to pay, the Fund's net return will be greater than if
AMPS leverage was not used. Conversely, however, if the return from the assets
obtained with the AMPS proceeds is not sufficient to cover the dividends and
cost of the AMPS, the net return of the Fund will be less than if AMPS leverage
was not used, and therefore the amount available for distribution to the Fund's
stockholders as dividends will be reduced.
BORROWING THROUGH REPURCHASE AGREEMENTS. The Fund may borrow by entering into
reverse repurchase agreements with any member bank of the Federal Reserve System
and any broker-dealer or any foreign bank that has been determined by the
Advisers to be creditworthy. Under a reverse repurchase agreement, the Fund
would sell securities and agree to repurchase them at a mutually agreed date and
price. At the time the Fund enters into a reverse repurchase agreement, it will
establish and maintain a segregated account with its custodian or a designated
sub-custodian, containing cash or liquid obligations having a value not less
than the repurchase price (including accrued interest). Reverse repurchase
agreements involve the risk that the market value of the securities purchased
with the proceeds of the sale of securities received by the Fund may decline
below the price of the securities the Fund is obligated to repurchase. In the
event the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, the buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Fund's
obligation to repurchase the securities, and the Fund's use of the proceeds of
the reverse repurchase agreement may effectively be restricted pending the
decision. Any reverse repurchase agreements entered into by the Fund will be
treated as borrowings for purposes of calculating the Fund's borrowing
limitation.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of the
Board of Directors. Accordingly, the Board is responsible for the overall
management of the Fund, including supervision of the duties performed by the
Advisers. There are five Directors of the Fund. Two of the Directors are
"interested persons" of the Fund (as defined in the 1940 Act). The Directors who
are not "interested persons" of the Fund are referred to herein as "Independent
Directors." See "Management of the Fund" in the Prospectus for additional
information about the Directors and officers of the Fund.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the beneficial
ownership of the Fund's shares as of [April 30, 2007], by each person who is
known by the Fund to beneficially own 5% or more of the Fund's common stock.
Number of Shares Number of Shares Percentage
Name and Address* of Owner Directly Owned Beneficially Owned Beneficially Owned
------------------------------------------------ ------------------------- ------------------------------ --------------------------
Ernest Horejsi Trust No. 1B (the "EH Trust") 2,375,911 2,375,911 20.88%
Badlands Trust Company, LLC ---** 20.88%
Stewart R. Horejsi Trust No. 2 ---** 20.88%
------------------------------------------------ ------------------------- ------------------------------ --------------------------
Aggregate Shares Owned** 2,375,911 2,375,911 20.88%
================================================ ========================= ============================== ==========================
Philip Goldstein and Andrew Dakos+ 655,000 655,000 5.76%
----------------------------
* The address of each listed owner is c/o Badlands Trust Company, LLC
("Badlands"), 3301 C Street, Suite 100, Anchorage, Alaska 99502.
** Excludes shares owned by the EH Trust. Badlands is one of three trustees of
the EH Trust. Badlands is a private trust company organized under the laws of
Alaska and is wholly owned by the Stewart R. Horejsi Trust No. 2, an irrevocable
trust organized by Stewart R. Horejsi for the benefit of his issue. The managers
of Badlands are Larry Dunlap, Stephen C. Miller, Laura Rhodenbaugh, Laura
Tatooles, and Ron Kukes, each of whom disclaim beneficial ownership of shares
owned by the EH Trust. Mr. Miller is an officer and manager of Badlands. Because
two of the Trust's trustees are required in order for the Trust to vote or
exercise dispositive authority with respect to shares owned by the Trust, Mr.
Miller disclaims beneficial ownership of such shares.
+ As stated in Schedule 13D Amendment No. 8 filed with the Securities and
Exchange Commission on December 4, 2006.
Information as to beneficial ownership in the previous paragraph has been
obtained from a representative of the beneficial owners; all other information
as to beneficial ownership is based on reports filed with the Securities and
Exchange Commission (the "SEC") by such beneficial owners.
As of ________________, Cede & Co., a nominee partnership of the Depository
Trust Fund, held of record, but not beneficially, [__________] shares or [____]%
of common stock outstanding of the Fund. As of _____________, officers and
Directors of the Fund, as a group, owned [_________] shares of the Fund's common
stock (including the aggregate shares of common stock owned by the EH Trust as
set forth above), representing [_____]% of common stock outstanding.
OWNERSHIP OF THE FUND BY DIRECTORS
Set forth in the following table are the current members of the Board together
with the dollar range of equity securities beneficially owned by each Director
as of November 30, 2006, as well as the aggregate dollar range of the Fund's
equity securities in all funds overseen in the Fund's family of investment
companies (i.e., other funds managed by BIA and SIA and which hold themselves
out as related companies).
------------------------------------------- ------------------------------------------- --------------------------------------------
Dollar Range of Equity Securities in the Aggregate Dollar Range of Equity
Fund Securities in All Funds in the Family of
Investment Companies
------------------------------------------- ------------------------------------------- --------------------------------------------
Independent Directors
------------------------------------------- ------------------------------------------- --------------------------------------------
Dr. Dean L. Jacobson $10,001 to $50,000 $50,001 to $100,000
Richard I. Barr $10,001 to $50,000 Over $100,000
Joel W. Looney $50,001 to $100,000 Over $100,000
------------------------------------------- ------------------------------------------- --------------------------------------------
Interested Directors
------------------------------------------- ------------------------------------------- --------------------------------------------
John S. Horejsi Over $100,000+ Over $100,000
Susan L. Ciciora Over $100,000+ Over $100,000
+ 2,375,911 shares of the Fund are held by the EH Trust, with respect to which
Mr. Horejsi and Ms. Ciciora are discretionary beneficiaries. Accordingly, Mr.
Horejsi and Ms. Ciciora may be deemed to have indirect beneficial ownership of
such Shares. Mr. Horejsi and Ms. Ciciora disclaim all such beneficial ownership.
Ms, Ciciora directly owns 9,000 shares of the Fund. Mr. Horejsi does not
directly own any shares of the Fund.
---------------------------
None of the Independent Directors or their family members owned beneficially or
of record any securities of the Advisers or any person directly or indirectly
controlling, controlled by, or under common control with the Advisers.
DIRECTOR AND OFFICER COMPENSATION
The following table sets forth certain information regarding the compensation of
the Independent Directors for the fiscal year ended November 30, 2006. No
persons other than the Independent Directors, as set forth below, currently
receive compensation from the Fund for acting as a Director or officer.
Directors and officers of the Fund do not receive pension or retirement benefits
from the Fund.
Name of Person and Position with the Fund Aggregate Compensation Total Compensation from the Fund and
from the Fund Fund Complex Paid to Directors
------------------------------------------------------ ------------------------- ---------------------------------------
Richard I. Barr, Director $24,000 $84,000
(3 funds)
Dr. Dean Jacobson, Director $15,826 $71,826
(3 funds)
Joel W. Looney, Director and Chairman of the Board $31,000 $97,000
(3 funds)
Susan L. Ciciora, Director $0 $0
John S. Horejsi, Director $0 $0
Each Director of the Fund who was not a director, officer or employee of one of
the Advisers, or any of their affiliates, receives a fee of $8,000 per annum
plus $3,000 for each in person meeting, $500 for each Audit Committee meeting
and $500 for each telephonic meeting of the Board. In addition, the Chairman of
the Board and the Chairman of the Audit Committee receives $1,000 per meeting.
Each non-interested Director of the Fund is reimbursed for travel and
out-of-pocket expenses associated with attending Board and Committee meetings.
The Board held nine meetings (five of which were held by telephone conference
call) during the fiscal year ended November 30, 2006. Each Director currently
serving in such capacity for the entire fiscal year attended at least 75% of the
meetings of Directors and any Committee of which he is a member. The aggregate
remuneration paid to the Directors of the Fund for acting as such during the
fiscal year ended November 30, 2006 amounted to $89,749.17.
COMMITTEES OF THE BOARD OF DIRECTORS
AUDIT COMMITTEE. The Fund has an audit committee consisting solely of all of the
Fund's Independent Directors (i.e., Messrs. Looney, Barr and Jacobson) (the
"Audit Committee"). The purpose of the Audit Committee is to assist Board
oversight of the integrity of the Fund's financial statements, the Fund's
compliance with legal and regulatory requirements, the independent auditor's
qualifications and independence and the performance of the Fund's independent
auditors. The Audit Committee reviews the scope and results of the Fund's annual
audit with the Fund's independent accountants and recommends the engagement of
such accountants. Management, however, is responsible for the preparation,
presentation and integrity of the Fund's financial statements, and the
independent accountants are responsible for planning and carrying out proper
audits and reviews. The Board of Directors adopted a written charter for the
Audit Committee on January 23, 2002 and most recently amended the Charter on
January 23, 2004. A copy of the Audit Committee Charter was attached as an
exhibit to the Fund's proxy statement dated March 8, 2007.
The Audit Committee is composed entirely of the Fund's independent Directors,
consisting of Messrs. Jacobson, Barr, and Looney. The Board of Directors has
determined that Joel Looney qualifies as an "audit committee financial expert,"
as defined under the Securities and Exchange Commission's Regulation S-K, Item
401(h). The Audit Committee is in compliance with applicable rules of the
listing requirements for closed-end fund audit committees; including the
requirement that all members of the audit committee be "financially literate"
and that at least one member of the audit committee have "accounting or related
financial management expertise," as determined by the Board. The Audit Committee
is required to conduct its operations in accordance with applicable requirements
of the Sarbanes-Oxley Act and the Public Company Accounting Oversight Board, and
the members of the Audit Committee are subject to the fiduciary duty to exercise
reasonable care in carrying out their duties. Each member of the Audit Committee
is independent, as that term is defined by the NYSE Listing Standards. The Audit
Committee met three times during the fiscal year ended November 30, 2006. In
connection with the audited financial statements as of and for the period ended
November 30, 2006 included in the Fund's Annual Report for the period ended
November 30, 2006 (the "Annual Report"), at meetings held on January 17, 2007
and January 26, 2007, the Audit Committee considered and discussed the audited
financial statements with management and the independent accountants, and
discussed the audit of such financial statements with the independent
accountants.
The Audit Committee has received the written disclosures and letter from the
independent accountants required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees) and has discussed with the
independent accountants their independence. The Audit Committee discussed with
the independent accountants the accounting principles applied by the Fund and
such other matters brought to the attention of the Audit Committee by the
independent accountants required by Statement of Auditing Standards No. 61,
Communications With Audit Committees, as currently modified or supplemented.
The members of the Audit Committee are not professionally engaged in the
practice of auditing or accounting and are not employed by the Fund in any
accounting, financial management or internal control capacity. Moreover, the
Audit Committee relies on and makes no independent verification of the facts
presented to it or representations made by management or the independent
accountants. Accordingly, the Audit Committee's oversight does not provide an
independent basis to determine that management has maintained appropriate
accounting and financial reporting principles and policies, or internal controls
and procedures, designed to assure compliance with accounting standards and
applicable laws and regulations. Furthermore, the Audit Committee's
considerations and discussions referred to above do not provide assurance that
the audit of the Fund's financial statements has been carried out in accordance
with generally accepted accounting standards or that the financial statements
are presented in accordance with generally accepted accounting principles.
NOMINATING COMMITTEE. The Board of Directors has a nominating committee (the
"Nominating Committee") consisting of Messrs. Looney, Jacobson and Barr, which
is responsible for considering candidates for election to the Board in the event
a position is vacated or created. Each member of the Nominating Committee is
independent, as that term is defined by the NYSE Listing Standards. The
Nominating Committee met three times during the fiscal year ended November 30,
2006.
On January 16, 2006, the Nominating Committee met when it was announced that Mr.
Alfred G. Aldridge, Jr. would not run for re-election as a director of the Fund
at the April shareholder meeting. Mr. Jacobson was nominated to serve as a
director. The Nominating Committee discussed the background and qualifications
of Mr. Jacobson and agreed to bring his nomination to the full Board. The
Nominating Committee met again on January 26, 2006 to conduct an annual review
of the Nominating Committee Charter and to further discuss the nomination of Mr.
Jacobson.
On October 13, 2006, Dennis Causier of Mallorca, Spain, submitted his
resignation as a director of the Fund. The remaining Directors accepted Mr.
Causier's resignation and, at the subsequent regularly scheduled Board meeting
held on October 23, 2006, nominated Susan L. Ciciora as Mr. Causier's
replacement. The Nominating Committee noted that Ms. Ciciora was the daughter of
Stewart Horejsi, the Fund's portfolio manager and an agent and beneficiary of
the Fund's largest stockholder (the EH Trust defined above). The Nominating
Committee also noted that Ms. Ciciora was a trustee and beneficiary of the EH
Trust. Accordingly, Ms. Ciciora would be considered an interested Director of
the Fund. At this meeting, the Nominating Committee considered the
qualifications and determined the suitability of Susan L. Ciciora to be Director
and resolved to recommend Ms. Ciciora to stockholders for election at the 2007
Annual Meeting. The Board of Directors has adopted a charter for the Nominating
Committee that is available on the Fund's website, www.boulderfunds.net.
The Nominating Committee does not have a formal process for identifying
candidates. The Nominating Committee takes into consideration such factors as it
deems appropriate when nominating candidates. These factors may include
judgment, skill, diversity, experience with investment companies and other
organizations of comparable purpose, complexity, size and subject to similar
legal restrictions and oversight, the interplay of the candidate's experience
with the experience of other Board members, and the extent to which the
candidate would be a desirable addition to the Board and any committees thereof.
The Nominating Committee will consider all qualified candidates in the same
manner. The Nominating Committee may modify its policies and procedures for
director nominees and recommendations in response to changes in the Fund's
circumstances, and as applicable legal or listing standards change.
The Nominating Committee will consider director candidates recommended by
stockholders (if a vacancy were to exist) and submitted in accordance with
applicable law and the following procedures. Pursuant to the Fund's Bylaws, at
any annual meeting of the stockholders, only business that has been properly
brought before the meeting will be conducted. To be properly brought before the
annual meeting, the business must be (i) specified in the notice of meeting,
(ii) by or at the direction of the Board, or (iii) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
the annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the Fund. To be timely, a
stockholder's notice must be delivered to the Secretary of the Fund no later
than 5:00 p.m., Mountain Time, on the 120th day prior to the first anniversary
of the date of mailing of the notice for the preceding year's annual meeting.
However, if the date of the annual meeting is advanced or delayed by more than
30 days from the first anniversary of the date of the preceding year's annual
meeting, for notice by the stockholder to be timely, it must be delivered not
later than 5:00 p.m., Mountain Time, on the later of the 120th day prior to the
date of such annual meeting or the tenth day following the day on which public
announcement of the date of such meeting is first made. The public announcement
of a postponement or adjournment of an annual meeting shall not commence a new
time period for the giving of a stockholder's notice as described above.
Pursuant to the Fund's Bylaws, such stockholder's notice shall set forth as to
each individual whom the stockholder proposes to nominate for election or
reelection as a director, (A) the name, age, business address and residence
address of such individual, (B) the class, series and number of any shares of
stock of the Fund that are beneficially owned by such individual, (C) the date
such shares were acquired and the investment intent of such acquisition, (D)
whether such stockholder believes any such individual is, or is not, an
"interested person" of the Fund, as defined in the 1940 Act and information
regarding such individual that is sufficient, in the discretion of the Board or
any committee thereof or any authorized officer of the Fund, to make such
determination and (E) all other information relating to such individual that is
required to be disclosed in solicitations of proxies for election of directors
in an election contest (even if an election contest is not involved), or is
otherwise required, in each case pursuant to Regulation 14A (or any successor
provision) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules thereunder (including such individual's written consent to
being named in the proxy statement as a nominee and to serving as a director if
elected).
INVESTMENT ADVISERS AND OTHER SERVICE PROVIDERS
The Fund is co-advised by Boulder Investment Advisers, LLC ("BIA") and Stewart
West Indies Trading Company, Ltd. d/b/a Stewart Investment Advisers ("SIA")
(collectively, the "Advisers"). The Advisers have been providing advisory
services to the Fund since January 2002, and to Boulder Total Return Fund, Inc.
since March 1999. As of November 30, 2006, the Advisers had a total of $____
million in assets under management.
BOULDER INVESTMENT ADVISERS, LLC. BIA was formed on April 8, 1999, as a Colorado
limited liability company and is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended. Stewart R. Horejsi is an employee
of and investment manager for both Advisers and has extensive experience
managing common stocks for the Fund as well as for the various other trusts and
entities affiliated with the Horejsi family (the "Horejsi Affiliates"). The
members of BIA are Evergreen Atlantic, LLC, whose address is 2344 Spruce Street,
Suite A, Boulder CO 80302, and the Lola Brown Trust No. 1B, whose address is c/o
Badlands Trust Company, LLC, 3301 C Street, Suite 100, Anchorage, Alaska 99502
(the "Members"). Each of the Members hold a 50% interest in BIA. The Members are
"affiliated persons" of the Fund (as that term is defined in the 1940 Act). Mr.
Horejsi and John S. Horejsi and Susan L. Ciciora, Mr. Horejsi's son and
daughter, respectively, and the Fund's two "interested" Directors, are
discretionary beneficiaries under the Lola Brown Trust No. 1B as well as under
other Horejsi Affiliates which own Evergreen Atlantic, LLC. Accordingly, as a
result of this relationship, Stewart R. Horejsi, John S. Horejsi and Susan L.
Ciciora may directly or indirectly benefit from the relationship between the
Fund and BIA.
STEWART INVESTMENT ADVISERS. SIA is a Barbados international business company
incorporated on November 12, 1996. SIA is wholly owned by the Stewart West
Indies Trust (the "West Indies Trust"), an irrevocable trust domiciled in Alaska
and established by Mr. Horejsi in 1996 primarily to benefit his issue. The West
Indies Trust's address is c/o Badlands Trust Company, LLC, 3301 C Street, Suite
100, Anchorage, Alaska 99502. Mr. Horejsi is not a beneficiary under the West
Indies Trust. However, John S. Horejsi and Susan L. Ciciora, Mr. Horejsi's son
and daughter, respectively, and the Fund's "interested" Directors, are
discretionary beneficiaries under the West Indies Trust and thus, as a result of
this relationship, may directly or indirectly benefit from the relationship
between SIA and the Fund.
SIA is not domiciled in the United States and substantially all of its assets
are located outside the United States. As a result, it may be difficult to
realize judgments of courts of the United States predicated upon civil
liabilities under federal securities laws of the United States. The Fund has
been advised that there is substantial doubt as to the enforceability in
Barbados of such civil remedies and criminal penalties as are afforded by the
federal securities laws of the United States. Pursuant to the advisory agreement
between SIA and the Fund, SIA has appointed the Secretary of the Fund (presently
Stephanie Kelley in Boulder, Colorado) as its agent for service of process in
any legal action in the United States, thus subjecting it to the jurisdiction of
the United States courts.
CO-ADVISORY AGREEMENTS. The Advisers and the Fund are parties to investment
co-advisory agreements dated as of April 26, 2002 (the "Advisory Agreements").
Under the terms of the Advisory Agreements, the Advisers provide advisory
services regarding asset allocation, manage the investment of the Fund's assets
and provide such investment research, advice and supervision, in conformity with
the Fund's investment objective and policies, as necessary for the operations of
the Fund. The Advisory Agreements provide, among other things, that the Advisers
will bear all expenses in connection with the performance of their services
under the Advisory Agreements.
The Advisory Agreements provide that the Fund shall pay to the Advisers for
their services an aggregate monthly fee at the annual rate of 1.25% of the
Fund's average monthly net assets, including the principal amount of leverage,
if any (the "Adviser Fee"). The Adviser Fee is higher than the fees paid by most
similarly situated U.S. investment companies. Under the terms of the Advisory
Agreements, the Advisers share the Adviser Fee as determined by the Advisers and
approved by the Board from time to time. Presently, BIA and SIA receive 25% and
75%, respectively, of the Adviser Fee. Although the Advisers intend to devote
such time and effort to the business of the Fund as they deem reasonably
necessary to perform their respective duties to the Fund, the services of the
Advisers are not exclusive and the Advisers may provide similar services to
other investment companies and other clients and may engage in other activities.
At a regular meeting of the Board held on January 27, 2007, the Advisers agreed
to a waiver of advisory fees at certain "break-point" levels such that, in the
future, the Adviser Fee would be calculated at the annual rate of 1.25% on asset
levels up to $400 million, 1.10% on assets levels between $400-$600 million; and
1.00% on asset levels exceeding $600 million.
The Advisory Agreements provide that the Advisers shall not be liable for any
error of judgment or mistake of law or omission or any loss suffered by the Fund
in connection with the matters to which the agreements relate, although the
agreements do not protect or purport to protect the Advisers against any
liability to the Fund to which the Advisers would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence on their part in the
performance of their duties or from reckless disregard by them of their
obligations and duties under the agreements. Each Advisory Agreement also
provides for indemnification by the Fund of the Advisers and their partners,
members, officers, employees, agents and control persons for liabilities
incurred by them in connection with their services to the Fund, subject to
certain limitations and conditions.
PORTFOLIO MANAGERS. Stewart R. Horejsi is the Fund's primary investment manager
and, together with Carl D. Johns, the Fund's Vice President and Treasurer, is
responsible for the day-to-day management of the Fund's assets. Mr. Horejsi is
primarily responsible for the Fund's asset allocation and Mr. Johns, also Vice
President and Treasurer for BIA, is responsible for research and managing the
Fund's fixed income portfolio. Messrs. Horejsi and Johns are referred to herein
as the "Portfolio Managers". The Portfolio Managers act as the portfolio
managers with respect to the Fund and one other registered investment company,
the Boulder Total Return Fund, Inc. ("BTF"). As of November 30, 2006, BTF had
total assets, including leverage, of approximately $369.1 million. Mr. Horejsi
also acts as portfolio manager with respect to a client of the Advisers who is a
Horejsi Affiliate, the Horejsi Charitable Foundation, which has total assets of
approximately $__________ million as of November 30, 2006. Mr. Horejsi also acts
as a financial consultant to the Horejsi Affiliates and manages their portfolios
of equities having an aggregate value of approximately $____ million as of
November 30, 2006.
The Portfolio Managers are compensated with fixed salaries which are established
based on a number of considerations, including, among others, job and portfolio
performance, industry compensation and comparables, and years of experience and
service with the Adviser. The Portfolio Managers are reviewed from time to time
and their salaries may be adjusted based on their recent and long-term job
performance and cost of living increases. Generally, the Portfolio Managers do
not receive bonuses. Conflicts of interest may arise in connection with the
Portfolio Managers' management of the Fund's investments. This is because the
Portfolio Managers also serve as portfolio managers to BTF and the other
accounts described above that may have investment objectives identical or
similar to those of the Fund. See "Potential Conflicts of Interest" below.
Mr. Horejsi does not directly own any shares of the Fund. However, the EH Trust,
which has engaged Mr. Horejsi as a financial consultant and of which Mr. Horejsi
is a discretionary beneficiary, holds __________ shares of the Fund as of
November 30, 2006. Accordingly, Mr. Horejsi may be deemed to have indirect
beneficial ownership of such shares which have a dollar range in excess of $1
million. Mr. Horejsi disclaims all such beneficial ownership. Mr. Johns holds
between $10,001 and $50,000 of the shares of the Fund as of November 30, 2006.
FUND ADMINISTRATIVE SERVICES, LLC. Fund Administrative Services, LLC ("FAS") is
the Fund's co-administrator. FAS (formerly Boulder Administrative Services, LLC)
is a Colorado limited liability company whose principal place of business is
2344 Spruce Street, Suite A, Boulder, Colorado 80302. The members of FAS are
Lola Brown Trust No. 1B (50%) and Evergreen Atlantic, LLC (50%). Stewart R.
Horejsi, the Fund's portfolio manager, his son John S. Horejsi and his daughter
Susan L. Ciciora, the Fund's "interested" Directors, are discretionary
beneficiaries of the Lola Brown Trust No. 1B, and of the trusts which own
Evergreen Atlantic, LLC. The officers of FAS are Stephen C. Miller, manager;
Carl Johns, assistant manager; Laura Rhodenbaugh, secretary/treasurer; and
Stephanie Kelley, assistant secretary. Since January of 2002, FAS has been
providing certain administrative and executive management services to the Fund,
including among other things negotiation of service provider contracts,
oversight of service providers, maintenance of the Fund's policies and
procedures, and provision of compliance, legal and fund accounting services. FAS
has also provided such administrative and executive management services to
Boulder Total Return Fund, Inc. since March of 1999 and to First Financial Fund,
Inc. since August of 2003.
The Fund and FAS are parties to an administration agreement dated February 1,
2004. Under the administration agreement, the Fund pays FAS a monthly fee
calculated at an annual rate of 0.20% of the value of the Fund's average monthly
net assets up to $250 million; 0.18% of the Fund's average monthly net assets on
the next $150 million; and, 0.15% on the value of the Fund's average monthly
assets over $400 million. FAS has agreed to cap the Fund's total administration
costs at 0.30% (including administration, co-administration, transfer agent and
custodian fees), and therefore waives a portion of its fee should the total
monthly administration expenses exceed 0.30% on an annualized basis.
INVESTORS BANK & TRUST COMPANY. Investors Bank & Trust Company ("Investors
Bank"), located at 200 Clarendon Street, Boston MA 02116, serves as the Fund's
co-administrator and custodian of its assets. As co-administrator, Investors
Bank provides certain services, including fund accounting and preparation of
materials for Board meetings. Under an administration agreement and custody
agreement between the Fund and Investors Bank, the Fund pays Investors Bank a
combined monthly fee for both co-administrative and custodian services
calculated at an annual rate of 0.058% of the value of the Fund's average
monthly net assets up to $300 million and 0.04% on the value of the Fund's
average monthly net assets over $300 million, or a minimum monthly fee of
$10,500. Presently, because of the level of the Fund's average monthly net
assets, the Fund pays the minimum fee of $10,500 monthly. In addition, Investors
Bank receives certain out-of-pocket expenses, transaction fees and certain
charges for securities transactions. All customary fees of the custodian are
paid by the Fund.
COMPENSATION TO THE ADVISERS AND ADMINISTRATORS
Information is provided in this Statement of Additional Information and the
Prospectus concerning the Advisers and Administrator and their agreements with
the Fund. The amounts paid to such persons during the last three fiscal years
or, if shorter, the period during which the entity was retained to provide
services to the Fund are as follows:
Name of Entity Fees Paid by the Fund+
------------------------------ ------------------------ ------------------------
fiscal 2004 2005 2006
--------------------------------------------------------------------------------
Boulder Investment Advisers, LLC $302,969
Stewart Investment Advisers $908,906
Fund Administrative Services, LLC $165,514*
Investors Bank & Trust Company $24,393**
*Prior to February 1, 2004, from fees it received under the prior administration
agreement between FAS and the Fund, FAS was required to pay substantially all
fees respecting services provided to the Fund by any sub-administrators,
custodian or transfer agent. Under this arrangement, out of the funds identified
in the Table above, FAS paid such outsourced service providers $27,112 during
fiscal year 2004. At a regular meeting of directors held on January 23, 2004,
the Board approved a new administration agreement where by the Fund would
separately pay FAS and all such service providers.
** Investors Bank began providing administration services to the Fund on October
1, 2004.
+ All figures are on a cash basis.
DURATION AND TERMINATION OF THE INVESTMENT ADVISORY AGREEMENTS
The terms of the Advisory Agreements were approved by the Board at a regular
meeting of the Board held on January 26, 2007, including a majority of the
Directors who are not parties to the agreement or "interested persons" of any
such party (as such term is defined in the 1940 Act).
Each Advisory Agreement will continue in effect without a term so long as its
continuation is specifically approved at least annually by both (i) the vote of
a majority of the Board or the vote of a majority of the outstanding voting
securities of the Fund (as such term is defined in the 1940 Act) and (ii) by the
vote of a majority of the directors who are not parties to such Advisory
Agreement or interested persons (as such term is defined in the 1940 Act) of any
such party, cast in person at a meeting called for the purpose of voting on such
approval. Any of the Advisory Agreements may be terminated as a whole at any
time by the Fund, without the payment of any penalty, upon the vote of a
majority of the Board or a majority of the outstanding voting securities of the
Fund or by the Advisers on 60 days' written notice by either party to the other.
Except as otherwise provided by order of the SEC or any rule or provision of the
1940 Act, each of the Advisory Agreements will terminate automatically in the
event of its assignment (as such term is defined in the 1940 Act and the rules
thereunder).
POTENTIAL CONFLICTS OF INTEREST
The Fund is managed by the Advisers, who also serve as investment advisers to
another closed-end investment company and at least one other account with
investment objectives identical or similar to those of the Fund. Mr. Horejsi
also manages a substantial portfolio of securities for the Horejsi Affiliates.
Securities frequently meet the investment objectives of the Fund, the Horejsi
Affiliates and such other funds and accounts. In such cases, the decision to
recommend a purchase to one fund or account rather than another is based on a
number of factors. The determining factors in most cases are the amount of
securities of the issuer then outstanding, the value of those securities and the
market for them. Other factors considered in the investment recommendations
include other investments that each fund or account presently has in a
particular industry and the availability of investment funds in each fund or
account. It is possible that at times identical securities will be held by more
than one fund and/or account. However, positions in the same issue may vary and
the length of time that any fund or account may choose to hold its investment in
the same issue may likewise vary.
To the extent that more than one of the funds or accounts managed by the
Advisers seeks to acquire the same security at about the same time, the Fund may
not be able to acquire as large a position in such security as it desires or it
may have to pay a higher price for the security. However, with respect to the
Horejsi Affiliates and the other private account managed by the Advisers, the
Horejsi Affiliates and such other private account have consented to allow the
funds managed by the Adviser to complete their transactions in any particular
security before the Horejsi Affiliates or such other private account will be
allowed to transact in such security, thus giving the funds managed by the
Advisers the first opportunity to trade in a particular security. The Fund may
not be able to obtain as large an execution of an order to sell or as high a
price for any particular portfolio security if the Advisers decide to sell on
behalf of another account the same portfolio security at the same time. On the
other hand, if the same securities are bought or sold at the same time by more
than one fund or account, the resulting participation in volume transactions
could produce better executions for the Fund. In the event more than one account
purchases or sells the same security on a given date, the purchases and sales
will normally be made as nearly as practicable on a pro rata basis in proportion
to the amounts desired to be purchased or sold by each account. Although the
other fund managed by the Advisers may have the same or similar investment
objectives and policies as the Fund, its portfolio does not generally consist of
the same investments as the Fund and its performance results are likely to
differ from those of the Fund.
PROXY VOTING
The Board has delegated to BIA the authority to vote proxies on behalf of the
Fund. The Board has approved the proxy voting guidelines of the Fund and will
review the guidelines and suggest changes they deem advisable. A summary of the
Fund's and BIA's proxy voting policies and procedures are attached to this
Statement of Additional Information as Appendix A. Information regarding how the
Fund voted proxies relating to portfolio securities during the most recent
12-month period ended June 30 is available without charge, upon request, by
calling 1-877-561-7914, and on the Securities and Exchange Commission's website,
at www.sec.gov.
CODE OF ETHICS
The Fund and the Advisers have adopted a joint code of ethics pursuant to Rule
17j-1 under the 1940 Act that is applicable to officers, directors and
designated employees of the Fund and the Advisers, as applicable (the "Code of
Ethics"). The Code of Ethics permits such personnel to engage in personal
securities transactions for their own account, including securities that may be
purchased or held by the Fund, and is designed to prescribe means reasonably
necessary to prevent conflicts of interest from arising in connection with
personal securities transactions. The Code of Ethics is on file with, and is
available from, the Securities and Exchange Commission's Public Reference Room
in Washington, D.C. Information on the operation of the Public Reference Room
may be obtained by calling the Commission at 1-(202)-942-8090. The Code of
Ethics is also available on the EDGAR database on the Commission's internet
website at http://www.sec.gov. Copies of the Code of Ethics may be obtained,
after paying a duplicating fee, by electronic request to the following e-mail
address: publicinfo@sec.gov, or by writing the Commission's Public Reference
Section, Washington, D.C. 20549-0102.
PORTFOLIO TRANSACTIONS, BROKERAGE ALLOCATION AND OTHER PRACTICES
All orders for the purchase or sale of portfolio securities are placed on behalf
of the Fund by the Advisers pursuant to authority contained in the Advisory
Agreements. The Advisers seek best execution in selecting brokers and dealers to
effect the Fund's transactions and negotiating prices and any brokerage
commissions. The Fund may purchase certain money market instruments directly
from an issuer, in which case no commissions or discounts are paid. No separate
brokerage commission is typically paid on bond transactions, which are typically
executed on a principal basis, in contrast to common stock transactions, where
brokerage commissions are the norm. The Fund paid approximately $19,000,
$_______, and $_________ in brokerage commissions for the fiscal years ended
November 30, 2004, 2005 and 2006, respectively.
The Advisers are responsible for effecting the Fund's securities transactions
and will do so in a manner it deems fair and reasonable to stockholders of the
Fund and not according to any formula. The Advisers' primary considerations in
selecting the manner of executing a securities transaction for the Fund are
prompt execution of orders, the size and breadth of the market for the security,
the reliability, integrity, financial condition and execution capability of the
firm, the difficulty in executing the order, and the best net price. The
Advisers have established procedures whereby it monitors, periodically evaluates
and reports to the Board the cost and quality of execution services provided by
brokers selected by the Advisers to execute transactions for the Fund. The
evaluation is made primarily based on a comparison of commissions charged by
other broker with similar capabilities and trade execution.
There are many instances when, in the judgment of the Advisers, more than one
firm can offer comparable execution services. In selecting among such firms,
consideration may be given to those firms which supply research and other
services in addition to execution services (often referred to as "soft
dollars"), although the Fund does not typically rely on such research. The Fund
has adopted a policy to deal with such "soft dollar" arrangements as follows:
(a) All soft dollar arrangements affecting the Funds must fall within the
safe harbor of Section 28(e) of the Securities Exchange Act, as
amended, as determined by the Funds' chief compliance officer.
(b) All soft dollar transactions must be disclosed to the Boards on a
quarterly basis.
(c) When third party research is obtained with soft dollars, the Advisers
must maintain documentation that the research directly assists the
Advisers in their management of the Funds' portfolios.
(d) The Advisers must disclose any other benefits that the Advisers or
their affiliates or other clients might receive regarding the soft
dollar benefits.
(e) The Advisers must test and document that brokers who provide soft
dollar research have the capability to provide best execution taking
into consideration the broker's financial responsibility,
responsiveness, the commission rate or spread involved, and the range
of services offered by such broker.
Although the Advisory Agreements contain no restrictions on portfolio turnover,
it is not the Fund's policy to engage in transactions with the objective of
seeking profits from short-term trading. The annual portfolio turnover rate of
the Fund is generally less than [50]%, excluding securities having a maturity of
one year or less. Because it is difficult to accurately predict portfolio
turnover rates, actual turnover may be higher or lower. Higher portfolio
turnover results in increased Fund expenses, including brokerage commissions,
dealer mark-ups and other transaction costs on the sale of securities and on the
reinvestment in other securities. For the fiscal years ended November 30, 2005
and November 30, 2006, the Fund's portfolio turnover rates were 41% and 35%,
respectively.
REPURCHASE OF SHARES
The Fund is a closed-end investment company and therefore its common
stockholders do not have the right to cause the Fund to redeem their shares.
Instead, the Fund's common shares trade in the open market at a price that is a
function of several factors, including net asset value, dividend stability,
relative demand for and supply of such shares in the market, general market and
economic conditions, dividend stability, dividend levels (which are in turn
affected by expenses), and other factors. Because shares of a closed-end
investment company may frequently trade at prices lower than net asset value (a
"Discount"), the Board may consider actions that might be taken to reduce or
eliminate any material Discount in respect of common shares, which may include
the repurchase of such shares in the open market or in private transactions, the
making of a tender offer for such shares at net asset value, or the conversion
of the Fund to an open-end investment company. The Board may decide not to take
any of these actions. In addition, there can be no assurance that share
repurchases or tender offers, if undertaken, will reduce any Discount.
Since the Fund has issued the AMPS, the Fund's ability to repurchase shares of,
or tender for, its common stock may be limited by the asset coverage
requirements of the 1940 Act and by asset coverage and other requirements
imposed by various rating agencies. No assurance can be given that the Board
will decide to undertake share repurchases or tenders or, if undertaken, that
repurchases and/or tender offers will result in the Fund's common stock trading
at a price that is close to, equal to or above net asset value. The Fund may
borrow to finance repurchases and/or tender offers. Any tender offer made by the
Fund for its shares may be at a price equal to or less than the net asset value
of such shares. Any service fees incurred in connection with any tender offer
made by the Fund will be borne by the Fund and will not reduce the stated
consideration to be paid to tendering stockholders.
Subject to its investment limitations, the Fund may borrow to finance the
repurchase of common shares or to make a tender offer. Interest on any
borrowings to finance share repurchase transactions or the accumulation of cash
by the Fund in anticipation of share repurchases or tenders will reduce the
Fund's net income. Any share repurchase, tender offer or borrowing that might be
approved by the Board would have to comply with the Exchange Act and the 1940
Act and the rules and regulations under each of those Acts.
Although the decision to take action in response to a Discount will be made by
the Board at the time it considers such issue, it is the Board's present policy,
which may be changed by the Board, not to authorize repurchases of common shares
or a tender offer for such shares if (1) such transactions, if consummated,
would (a) result in the delisting of the common shares from the NYSE, or (b)
impair the Fund's status as a regulated investment company under the Code (which
would make the Fund a taxable entity, causing the Fund's income to be taxed at
the corporate level in addition to the taxation of stockholders who receive
dividends from the Fund) or as a registered closed-end investment company under
the 1940 Act; (2) the Fund would not be able to liquidate portfolio securities
in an orderly manner and consistent with the Fund's investment objective and
policies in order to repurchase shares; or (3) there is, in the Board's
judgment, any (a) material legal action or proceeding instituted or threatened
challenging such transactions or otherwise materially adversely affecting the
Fund, (b) general suspension of or limitation on prices for trading securities
on the NYSE, (c) declaration of a banking moratorium by Federal or state
authorities or any suspension of payment by U.S. banks in which the Fund
invests, (d) material limitation affecting the Fund or the issuers of its
portfolio securities by Federal or state authorities on the extension of credit
by lending institutions or on the exchange of foreign currency, (e) commencement
of war, armed hostilities or other international or national calamity directly
or indirectly involving the United States, or (f) other event or condition which
would have a material adverse effect (including any adverse tax effect) on the
Fund or its stockholders if shares were repurchased. The Board may in the future
modify these conditions in light of experience.
The repurchase by the Fund of its common shares at prices below net asset value
will result in an increase in the net asset value of those shares that remain
outstanding. However, there can be no assurance that share repurchases or
tenders at or below net asset value will result in the Fund's common shares
trading at a price equal to their net asset value. Nevertheless, the fact that
the Fund's shares may be the subject of repurchase or tender offers at net asset
value from time to time, or that the Fund may be converted to an open-end
company, may be helpful in reducing any spread between market price and net
asset value that might otherwise exist.
In addition, a purchase by the Fund of its common shares will decrease the
Fund's total assets, which would likely have the effect of increasing the Fund's
expense ratio. Any purchase by the Fund of its common shares at a time when AMPS
are outstanding will increase the leverage applicable to the outstanding common
shares then remaining and decrease the asset coverage of the AMPS.
Before deciding whether to take any action if the common shares trade below net
asset value, the Board would likely consider all relevant factors, including the
extent and duration of the Discount, the liquidity of the Fund's portfolio, the
impact of any action that might be taken on the Fund or its stockholders and
market considerations. Based on these considerations, even if the Fund's shares
should trade at a Discount, the Board may determine that, in the interest of the
Fund and its stockholders, no action should be taken.
FEDERAL INCOME TAX MATTERS
The following is a summary discussion of certain U.S. federal income tax
consequences that may be relevant to a stockholder acquiring, holding and
disposing of Common Shares. This discussion does not address the tax
consequences to stockholders that are subject to special rules, including,
without limitation, banks and financial institutions, insurance companies,
dealers in securities or foreign currencies, foreign stockholders, tax-exempt or
tax-deferred plans, accounts, or entities, or investors who engage in
constructive sale or conversion transactions. In addition, the discussion does
not address state, local or foreign tax consequences, and it does not address
any tax consequences other than U.S. federal income tax consequences. The
discussion reflects applicable tax laws of the United States as of the date of
this Statement of Additional Information, which tax laws may be changed or
subject to new interpretations by the courts, Treasury or the Internal Revenue
Service (the "IRS") retroactively or prospectively. No attempt is made to
present a detailed explanation of all U.S. federal income tax concerns affecting
the Fund or its stockholders, and the discussion set forth herein does not
constitute tax advice. Investors are urged to consult their own tax advisers to
determine the specific tax consequences to them of investing in the Fund,
including the applicable federal, state, local and foreign tax consequences to
them and the effect of possible changes in tax laws.
As required by U.S. Treasury Regulations governing tax practice, you are hereby
advised that any written tax advice contained herein was not written or intended
to be used (and cannot be used) by any taxpayer for the purpose of avoiding
penalties that may be imposed under the Code. Any person reviewing this
discussion should seek advice based on such person's particular circumstances
from an independent tax adviser.
The Fund has qualified and elected to be treated each year as a "regulated
investment company" under Subchapter M of the Code and to comply with applicable
distribution requirements so that it generally will not pay U.S. federal income
tax on income of the Fund, including net capital gains, distributed to
stockholders. In order to qualify as a regulated investment company under
Subchapter M of the Code, which qualification this discussion assumes, the Fund
must, among other things, derive at least 90% of its gross income for each
taxable year from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock, securities or foreign
currencies, or other income (including gains from options, futures and forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "90% income test"). In addition to satisfying the
requirements described above, the Fund must satisfy an asset diversification
test in order to qualify as a regulated investment company. Under this test, at
close of each quarter of the Fund's taxable year, at least 50% of the value of
the Fund's assets must consist of cash and cash items (including receivables),
U.S. Government securities, securities of other regulated investment companies,
and securities of other issuers (as to which the Fund must not have invested
more than 5% of the value of the Fund's total assets in securities of any one
such issuer and as to which the Fund must not have held more than 10% of the
outstanding voting securities of any one such issuer), and no more than 25% of
the value of its total assets may be invested in the securities (other than U.S.
Government securities and securities of other regulated investment companies) of
any one issuer, or of two or more issuers which the Fund controls and which are
engaged in the same or similar or related trades or businesses.
The American Jobs Creation Act of 2004 (the "2004 Tax Act") provides that for
taxable years of a regulated investment company beginning after October 22,
2004, net income derived from an interest in a "qualified publicly traded
partnership," as defined in the Code, will be treated as qualifying income for
purposes of the 90% income test, and for the purposes of the diversification
requirements described above, the outstanding voting securities of any issuer
includes the equity securities of a qualified publicly traded partnership and no
more than 25% of the value of a regulated investment company's total assets may
be invested in the securities of one or more qualified publicly traded
partnerships. In addition, the separate treatment for publicly traded
partnerships under the passive loss rules of the Code applies to a regulated
investment company holding an interest in a qualified publicly traded
partnership, with respect to items attributable to such interest.
If the Fund qualifies as a regulated investment company and, for each taxable
year, it distributes to its stockholders an amount equal to or exceeding the sum
of (i) 90% of its "investment company taxable income" as that term is defined in
the Code (which includes, among other things, dividends, taxable interest, and
the excess of any net short-term capital gains over net long-term capital
losses, as reduced by certain deductible expenses) and (ii) 90% of the excess of
its gross tax-exempt interest, if any, over certain disallowed deductions, the
Fund generally will not be subject to U.S. federal income tax on any income of
the Fund, including "net capital gain" (the excess of net long-term capital gain
over net short-term capital loss), distributed to stockholders. However, if the
Fund has met such distribution requirements but chooses not to distribute some
portion of its investment company taxable income or net capital gain, it
generally will be subject to U.S. federal income tax at regular corporate rates
on the amount retained. The Fund intends to distribute at least annually all or
substantially all of its investment company taxable income, net tax-exempt
interest, and net capital gain. If for any taxable year the Fund did not qualify
as a regulated investment company, it would be treated as a corporation subject
to U.S. federal income tax and all distributions out of earnings and profits
would be taxed to stockholders as ordinary income. In addition, the Fund could
be required to recognize unrealized gains, pay taxes and make distributions
(which could be subject to interest charges) before requalifying as a regulated
investment company.
Under the Code, the Fund will be subject to a nondeductible 4% U.S. federal
excise tax on a portion of its undistributed taxable ordinary income and capital
gains if it fails to meet certain distribution requirements with respect to each
calendar year. The Fund intends to make distributions in a timely manner and
accordingly does not expect to be subject to the excise tax, but as described
below, there can be no assurance that the Fund's distributions will be
sufficient to avoid entirely this tax.
Assuming that the Fund has sufficient earnings and profits, dividends from
investment company taxable income are taxable as ordinary income and
distributions from net capital gain, if any, that are designated as capital gain
dividends are taxable as long-term capital gains for U.S. federal income tax
purposes without regard to the length of time the stockholder has held shares of
the Fund. Since the Fund's income is derived primarily from interest, dividends
of the Fund from its investment company taxable income generally will not
constitute "qualified dividend income" for federal income tax purposes and thus
will not be eligible for the favorable federal long-term capital gain tax rates
on qualified dividend income. In addition, the Fund's dividends are not expected
to qualify for any dividends-received deduction that might otherwise be
available for certain dividends received by stockholders that are corporations.
Capital gain dividends distributed by the Fund to individual stockholders
generally will qualify for the maximum 15% U.S. federal tax rate on long-term
capital gains. Under current law, the maximum 15% U.S. federal tax rate on
qualified dividend income and long-term capital gains will cease to apply to
taxable years beginning after December 31, 2008.
Distributions by the Fund in excess of the Fund's current and accumulated
earnings and profits will be treated as a return of capital to the extent of
(and in reduction of) the stockholder's tax basis in its shares and any such
amount in excess of that basis will be treated as gain from the sale of shares,
as discussed below. The U.S. federal income tax status of all distributions will
be reported to stockholders annually. If the Fund retains any net capital gain
for a taxable year, the Fund may designate the retained amount as undistributed
capital gains in a notice to stockholders who, if subject to U.S. federal income
tax on long-term capital gains, (i) will be required to include in income for
U.S. federal income tax purposes, as long-term capital gain, their proportionate
shares of such undistributed amount, and (ii) will be entitled to credit their
proportionate shares of the tax paid by the Fund on the undistributed amount
against their U.S. federal income tax liabilities, if any, and to claim refunds
to the extent the credit exceeds such liabilities.
Although dividends generally will be treated as distributed when paid, any
dividend declared by the Fund as of a record date in October, November or
December and paid during the following January will be treated for U.S. federal
income tax purposes as received by stockholders on December 31 of the calendar
year in which it is declared. In addition, certain other distributions made
after the close of a taxable year of the Fund may be "spilled back" and treated
as paid by the Fund (except for purposes of the 4% excise tax) during such
taxable year. In such case, stockholders generally will be treated as having
received such dividends in the taxable year in which the distributions were
actually made.
If the Fund invests in certain pay-in-kind securities, zero coupon securities,
deferred interest securities or, in general, any other securities with original
issue discount (or with market discount if the Fund elects to include market
discount in income currently), the Fund generally must accrue income on such
investments for each taxable year, which generally will be prior to the receipt
of the corresponding cash payments. However, the Fund must distribute, at least
annually, all or substantially all of its investment company taxable income and
net tax-exempt interest, including such accrued income, to stockholders to
qualify as a regulated investment company under the Code and avoid U.S. federal
income and excise taxes. Therefore, the Fund may have to dispose of its
portfolio securities under disadvantageous circumstances to generate cash, or
may have to borrow the cash, to satisfy distribution requirements.
The Fund may invest significantly in debt obligations that are in the lowest
rating categories or are unrated, including debt obligations of issuers not
currently paying interest or who are in default. Investments in debt obligations
that are at risk of or in default present special tax issues for the Fund. Tax
rules are not entirely clear about issues such as when the Fund may cease to
accrue interest, original issue discount or market discount, when and to what
extent deductions may be taken for bad debts or worthless securities, how
payments received on obligations in default should be allocated between
principal and income and whether exchanges of debt obligations in a workout
context are taxable. These and other issues will be addressed by the Fund, in
the event it invests in such securities, in order to seek to ensure that it
distributes sufficient income to preserve its status as a regulated investment
company and does not become subject to U.S. federal income or excise tax.
If the Fund utilizes leverage through borrowing or issuing AMPS, a failure by
the Fund to meet the asset coverage requirements imposed by the 1940 Act or by
any rating organization that has rated such leverage, or additional restrictions
that may be imposed by certain lenders on the payment of dividends or
distributions potentially could limit or suspend the Fund's ability to make
distributions on its common shares. Such a limitation or suspension or
limitation could prevent the Fund from distributing at least 90% of its
investment company taxable income and net tax-exempt interest as is required
under the Code and therefore might jeopardize the Fund's qualification for
taxation as a regulated investment company under the Code and/or might subject
the Fund to the 4% excise tax discussed above. Upon any failure to meet such
asset coverage requirements, the Fund may, in its sole discretion, purchase or
redeem shares of preferred stock in order to maintain or restore the requisite
asset coverage and avoid the adverse consequences to the Fund and its
stockholders of failing to satisfy the distribution requirement. There can be no
assurance, however, that any such action would achieve these objectives. The
Fund will endeavor to avoid restrictions on its ability to distribute dividends.
For U.S. federal income tax purposes, the Fund is permitted to carry forward an
unused net capital loss for any year to offset its capital gains, if any, for up
to eight years following the year of the loss. To the extent subsequent capital
gains are offset by such losses, they would not result in U.S. federal income
tax liability to the Fund and are not expected to be distributed as such to
stockholders.
At the time of an investor's purchase of Fund shares, a portion of the purchase
price may be attributable to realized or unrealized appreciation in the Fund's
portfolio or undistributed taxable income of the Fund. Consequently, subsequent
distributions by the Fund with respect to these shares from such appreciation or
income may be taxable to such investor even if the trading value of the
investor's shares is, as a result of the distributions, reduced below the
investor's cost for such shares and the distributions economically represent a
return of a portion of the investment.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
certain options and futures contracts relating to foreign currency, foreign
currency forward contracts, foreign currencies, or payables or receivables
denominated in a foreign currency are subject to Section 988 of the Code, which
generally causes such gains and losses to be treated as ordinary income and
losses and may affect the amount, timing and character of distributions to
stockholders. Under Treasury regulations that may be promulgated in the future,
any gains from such transactions that are not directly related to the Fund's
principal business of investing in stock or securities (or its options contracts
or futures contracts with respect to stock or securities) may have to be limited
in order to enable the Fund to satisfy the 90% income test. If the net foreign
exchange loss for a year were to exceed the Fund's investment company taxable
income (computed without regard to such loss), the resulting ordinary loss for
such year would not be deductible by the Fund or its stockholders in future
years.
Sales and other dispositions of Fund shares are taxable events for stockholders
that are subject to tax. Stockholders should consult their own tax advisers with
reference to their individual circumstances to determine whether any particular
transaction in Fund shares is properly treated as a sale for tax purposes, as
the following discussion assumes, and the tax treatment of any gains or losses
recognized in such transactions. In general, if Fund shares are sold, the
stockholder will recognize gain or loss equal to the difference between the
amount realized on the sale and the stockholder's adjusted tax basis in the
shares sold. Such gain or loss will be treated as long-term capital gain or loss
if the shares sold were held for more than one year and otherwise generally will
be treated as short-term capital gain or loss. Any loss realized by a
stockholder upon the sale or other disposition of shares with a tax holding
period of six months or less will be treated as a long-term capital loss to the
extent of any amounts treated as distributions of long-term capital gains with
respect to such shares. Losses on sales or other dispositions of shares may be
disallowed under "wash sale" rules in the event substantially identical shares
of the Fund are purchased (including those made pursuant to reinvestment of
dividends and/or capital gains distributions) within a period of 61 days
beginning 30 days before and ending 30 days after a redemption or other
disposition of shares. In such a case, the disallowed portion of any loss
generally would be included in the U.S. federal tax basis of the shares acquired
in the other investments. The ability to otherwise deduct capital losses may be
subject to other limitations under the Code.
Under Treasury regulations, if a stockholder recognizes a loss with respect to
shares of $2 million or more for an individual stockholder, or $10 million or
more for a corporate stockholder, in any single taxable year (or a greater
amount over a combination of years), the stockholder must file with the IRS a
disclosure statement on Form 8886. Stockholders who own portfolio securities
directly are in many cases excepted from this reporting requirement but, under
current guidance, stockholders of regulated investment companies are not
excepted. A stockholder who fails to make the required disclosure to the IRS may
be subject to substantial penalties. The fact that a loss is reportable under
these regulations does not affect the legal determination of whether or not the
taxpayer's treatment of the loss is proper. Stockholders should consult with
their tax advisers to determine the applicability of these regulations in light
of their individual circumstances. Options written or purchased and futures
contracts entered into by the Fund on certain securities, indices and foreign
currencies, as well as certain forward foreign currency contracts, may cause the
Fund to recognize gains or losses from marking-to-market even though such
options may not have lapsed, been closed out, or exercised, or such futures and
forward contracts may not have been performed or closed out. The tax rules
applicable to these contracts may affect the characterization of some capital
gains and losses realized by the Fund as long-term or short-term. Certain
options, futures and forward contracts relating to foreign currencies may be
subject to Section 988, as described above, and accordingly may produce ordinary
income or loss. Additionally, the Fund may be required to recognize gain if an
option, futures contract, short sale or other transaction that is not subject to
the mark-to-market rules is treated as a "constructive sale" of an "appreciated
financial position" held by the Fund under Section 1259 of the Code. Any net
mark-to-market gains and/or gains from constructive sales may also have to be
distributed to satisfy the distribution requirements referred to above even
though the Fund may receive no corresponding cash amounts, possibly requiring
the disposition of portfolio securities or borrowing to obtain the necessary
cash. Losses on certain options, futures or forward contracts and/or offsetting
positions (portfolio securities or other positions with respect to which the
Fund's risk of loss is substantially diminished by one or more options, futures
or forward contracts) may also be deferred under the tax straddle rules of the
Code, which may also affect the characterization of capital gains or losses from
straddle positions and certain successor positions as long-term or short-term.
Certain tax elections may be available that would enable the Fund to ameliorate
some adverse effects of the tax rules described in this paragraph. The tax rules
applicable to options, futures, forward contracts and straddles may affect the
amount, timing and character of the Fund's income and gains or losses and hence
of its distributions to stockholders.
The federal income tax treatment of the Fund's investment in transactions
involving swaps, caps, floors, and collars and structured securities is
uncertain and may be subject to recharacterization by the IRS. To the extent the
tax treatment of such securities or transactions differs from the tax treatment
expected by the Fund, the timing or character of income recognized by the Fund
could be affected, requiring the Fund to purchase or sell securities, or
otherwise change its portfolio, in order to comply with the tax rules applicable
to regulated investment companies under the Code.
The IRS has taken the position that if a regulated investment company has two
classes or more of shares, it must designate distributions made to each class in
any year as consisting of no more than such class's proportionate share of
particular types of income, including ordinary income and net capital gain. A
class's proportionate share of a particular type of income is determined
according to the percentage of total dividends paid by the regulated investment
company to such class. Consequently, if both common shares and AMPS are
outstanding, the Fund intends to designate distributions made to the classes of
particular types of income in accordance with the classes' proportionate shares
of such income. Thus, the Fund will designate dividends constituting capital
gain dividends and other taxable dividends in a manner that allocates such
income between the holders of common shares and AMPS in proportion to the total
dividends paid to each class during the taxable year, or otherwise as required
by applicable law.
The Fund may be subject to withholding and other taxes imposed by foreign
countries, including taxes on interest, dividends and capital gains with respect
to its investments in those countries, which would, if imposed, reduce the yield
on or return from those investments. Tax conventions between certain countries
and the U.S. may reduce or eliminate such taxes in some cases. The Fund does not
expect to satisfy the requirements for passing through to its stockholders their
pro rata shares of qualified foreign taxes paid by the Fund, with the general
result that stockholders would not be entitled to any deduction or credit for
such taxes on their own tax returns.
Federal law requires that the Fund withhold (as "backup withholding") 28% of
reportable payments, including dividends, capital gain distributions and the
proceeds of redemptions and exchanges or repurchases of Fund shares, paid to
stockholders who have not complied with IRS regulations. In order to avoid this
withholding requirement, stockholders must certify on their Account
Applications, or on separate IRS Forms W-9, that the Social Security Number or
other Taxpayer Identification Number they provide is their correct number and
that they are not currently subject to backup withholding, or that they are
exempt from backup withholding. The Fund may nevertheless be required to
withhold if it receives notice from the IRS or a broker that the number provided
is incorrect or backup withholding is applicable as a result of previous
underreporting of interest or dividend income.
The description of certain U.S. federal tax provisions above relates only to
U.S. federal income tax consequences for stockholders who are U.S. persons,
i.e., U.S. citizens or residents or U.S. corporations, partnerships, trusts or
estates, and who are subject to U.S. federal income tax. Investors other than
U.S. persons may be subject to different U.S. tax treatment, including a
non-resident alien U.S. withholding tax at the rate of 30% or at a lower treaty
rate on amounts treated as ordinary dividends from the Fund and, unless an
effective IRS Form W-8BEN or other authorized withholding certificate is on
file, to backup withholding at the rate of 28% on certain other payments from
the Fund. Under the provisions the 2004 Tax Act, dividends paid by the Fund to
non-U.S. stockholders that are derived from short-term capital gains and
qualifying net interest income (including income from original issue discount
and market discount), and that are properly designated by the Fund as
"interest-related dividends" or "short-term capital gain dividends," will
generally not be subject to U.S. withholding tax, provided that the income would
not be subject to federal income tax if earned directly by the non-U.S.
stockholder. In addition, pursuant to the 2004 Tax Act, distributions of the
Fund attributable to gains from sales or exchanges of "U.S. real property
interests" (as defined in the Code and regulations) (including certain U.S. real
property holding corporations) will generally be subject to U.S. withholding tax
and may give rise to an obligation on the part of the non-U.S. stockholder to
file a United States tax return. The provisions contained in the 2004 Tax Act
relating to distributions to stockholders who are non-U.S. persons generally
will apply to distributions with respect to taxable years of the Fund beginning
after December 31, 2004 and before January 1, 2008. Stockholders should consult
their own tax advisers on these matters and on state, local, foreign and other
applicable tax laws.
PERFORMANCE-RELATED, COMPARATIVE AND OTHER INFORMATION
PERFORMANCE-RELATED INFORMATION. From time to time, in advertisements, sales
literature or reports to stockholders, the past performance of the Fund may be
illustrated and/or compared with that of other investment companies with similar
investment objectives. For example, yield or total return of the Fund's shares
may be compared to averages or rankings prepared by Lipper, Inc., a widely
recognized independent service which monitors mutual fund performance; the S&P
500 Index; the Dow Jones Industrial Average; or other comparable indices or
investment vehicles. In addition, the performance of the Fund's shares may be
compared to alternative investment or savings vehicles and/or to indices or
indicators of economic activity, e.g., inflation or interest rates. The Fund may
also include securities industry or comparative performance information
generally and in advertising or materials marketing the Fund's shares.
Performance rankings and listings reported in newspapers or national business
and financial publications, such as Barron's, Business Week, Consumers Digest,
Consumer Reports, Financial World, Forbes, Fortune, Investors Business Daily,
Kiplinger's Personal Finance Magazine, Money Magazine, New York Times, Smart
Money, USA Today, U.S. News and World Report, The Wall Street Journal and Worth,
may also be cited (if the Fund is listed in any such publication) or used for
comparison, as well as performance listings and rankings from various other
sources including Bloomberg Financial Markets, CDA/Wiesenberger, Donoghue's
Mutual Fund Almanac, Ibbotson Associates, Investment Company Data, Inc.,
Johnson's Charts, Kanon Bloch Carre and Co., Lipper, Inc., Micropal, Inc.,
Morningstar, Inc., Schabacker Investment Management and Towers Data Systems,
Inc. In addition, from time to time, quotations from articles from financial
publications such as those listed above may be used in advertisements, in sales
literature or in reports to stockholders of the Fund. The Fund may also present,
from time to time, historical information depicting the value of a hypothetical
account in one or more classes of the Fund since inception.
Past performance is not indicative of future results. At any time in the future,
yields and total return may be higher or lower than past yields and total
return, and there can be no assurance that any historical results will continue.
THE ADVISERS. From time to time, the Advisers may use, in advertisements or
information furnished to present or prospective stockholders, information
regarding the Advisers including, without limitation, information regarding
their investment style, countries of operation, organization, professional
staff, clients (including other registered investment companies), assets under
management and performance record. These materials may refer to opinions or
rankings of the Advisers' overall investment management performance contained in
third-party reports or publications.
FINANCIAL STATEMENTS
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. The statements of assets and
liabilities and operations of the Fund as of November 30, 2006, incorporated by
reference into this Statement of Additional Information, have been audited by
Deloitte & Touche LLP ("Deloitte"), the Fund's independent registered public
accounting firm, as set forth in its report thereon appearing elsewhere herein,
and is included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing. Deloitte & Touche USA LLP, located
at 555 17th Street, Denver, Colorado, has served as the Fund's independent
registered public accounting firm since July 2006. The Audit Committee of the
Board will select the Fund's independent accountants for the Fund's fiscal year
ending November 30, 2007 at the Board's regular quarterly meeting in August
2007. The financial statements and report of the independent registered public
accounting firm incorporated by reference into this Statement of Additional
Information have been so incorporated and the financial highlights included in
the prospectus have been so included in reliance upon the report of Deloitte
given on their authority as experts in auditing and accounting.
INCORPORATION BY REFERENCE. The Fund's audited Portfolio of Investments and
Statement of Assets and Liabilities dated November 30, 2006; audited Statement
of Operations and Statement of Changes in Net Assets for the year ended November
30, 2006; and report of the independent registered public accounting firm for
the year ended November 30, 2006, are included in the Fund's Annual Report for
the fiscal year ended November 30, 2006, and incorporated herein by reference.
You may request a free copy of this Statement of Additional Information or the
Fund's annual and semi-annual reports, request other information about the Fund,
or make stockholder inquiries by calling (877) 561-7914 or by writing to the
Fund. This Statement of Additional Information and annual and semi-annual
reports are also available free of charge on the Fund's website
(http://www.boulderfunds.net) and on the Securities and Exchange Commission's
website (http://www.sec.gov), which also contains other information about the
Fund. You may also email requests for these documents to publicinfo@sec.gov or
make a request in writing to the Securities and Exchange Commission's Public
Reference Section, Washington, D.C. 20549-0102. The Fund's registration number
under the 1940 Act is 811-02328.
ADDITIONAL INFORMATION
A Registration Statement on Form N-2, including amendments thereto, relating to
the shares offered hereby, has been filed by the Fund with the Securities and
Exchange Commission, Washington, D.C. The prospectus and this Statement of
Additional Information do not contain all of the information set forth in the
Registration Statement, including any exhibits and schedules thereto. For
further information with respect to the Fund and the shares offered hereby,
reference is made to the Registration Statement. Statements contained in the
prospectus and this Statement of Additional Information as to the contents of
any contract or other document referred to are not necessarily complete and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference.
Appendix A
Boulder Growth & Income Fund, Inc.
Proxy Voting Procedures
The Board of Directors of the Boulder Total Return Fund, Inc. and Boulder
Growth & Income Fund, Inc. (collectively, the "Funds") hereby adopt the
following policies and procedures with respect to voting proxies relating to
portfolio securities held by the Funds (collectively, the "Voting Policies").
1. Policy. It is the policy of each of the Boards of Directors of the Funds
(the "Board") to delegate the responsibility for voting proxies relating to
portfolio securities held by the Funds to Boulder Investment Advisers, L.L.C.
(the "Adviser") as a part of the Adviser's general management of the Funds,
subject to the Board's continuing oversight.(1) The voting of proxies is an
integral part of the investment management services that the Adviser provides
pursuant to the advisory contract. Proxy voting policies and procedures are
required by Rule 206 (4)-6 of the Investment Advisers Act of 1940, and will be
effective August 6, 2003.
2. Fiduciary Duty. The right to vote a proxy with respect to portfolio
securities held by the Funds is a significant asset of the Fund. The Adviser, to
which authority to vote on behalf of the Funds is delegated, exercises this
voting responsibility as a fiduciary, and votes proxies in a manner consistent
with the best interest of the Funds and its shareholders, and with the goal of
maximizing the value of the Funds and the shareholders' investments.
3. Procedures. The following are the procedures adopted by the Board for
the administration of this policy:
a. Review of Adviser Proxy Voting Procedures. The Adviser, with advice
and counsel from the Board, shall present to the Board its policies,
procedures and other guideline for voting proxies at least annually (the
"Voting Guidelines"), and must notify the Board promptly of any material
changes. In accordance with the foregoing, the Adviser has developed the
Voting Guidelines which are attached hereto as Exhibit A.
b. Voting Record Reporting. No less than annually, the Adviser shall
report to the Board a record of each proxy voted with respect to portfolio
securities of the Funds during the respective year. With respect to those
proxies the Adviser has identified as involving a conflict of interest(2),
the Adviser shall submit a separate report indicating the nature of the
conflict of interest and how that conflict was resolved with respect to the
voting of the proxy.
4. Revocation. The delegation by the Board of the authority to vote proxies
relating to portfolio securities of the Funds is entirely voluntary and may be
revoked by the Board, in whole or in part, at any time. This disclosure shall be
included in any registration statement filed on behalf of the Funds after July
1, 2003.
5. Annual Filing. The Fund shall file an annual report of each proxy voted
with respect to portfolio securities of the Funds during the twelve-month period
ended June 30 on Form N-PX not later than August 31 of each year. The Fund must
file the complete proxy voting record on an annual basis on this form. Form N-PX
must contain complete proxy voting records for the 12 month period stated above,
and must be signed on behalf of the Fund by the principal executive officers.
This form must provide the following information:
1. Name of the issuer of the portfolio security
2. Exchange ticker symbol
3. CUSIP #
4. Shareholder meeting date
5. Brief indication of the matter voted on
6. Whether matter was proposed by the issuer or by a security
holder
7. Whether the Fund cast its vote on the matter
8. How the Fund cast its vote
9. Whether the Fund cast its vote for or against management
6. Disclosures.
a. The Fund shall include in any future registration statement:
i. A description of the Voting Policies and the Voting
Guidelines(3); and
ii. A statement disclosing that information regarding how the
Fund voted proxies relating to portfolio securities during the most
recent 12-month period ended June 30 is available without charge, upon
request, by calling the Funds' toll-free telephone number; or through
a specified Internet address; or both; and on the SEC website.(4)
b. The Fund shall include in its Annual and Semi-Annual Reports to
shareholders:
i. A statement disclosing that the Voting Policies and Voting
Guidelines are available without charge, upon request, by calling the
Funds' toll-free telephone number; or through a specified Internet
address; and on the SEC website.(5)
ii. A statement disclosing that information regarding how the
Fund voted proxies relating to portfolio securities during the most
recent 12-month period ended June 30 is available without charge, upon
request, by calling the Fund's toll-free telephone number; or through
a specified Internet address; or both; and on the SEC website.(6)
7. Recordkeeping Requirements. SEC Rule 204-2, as amended, requires
advisers to retain:
1. Proxy voting policies and procedures
2. Proxy statements received regarding client securities
3. Records of votes cast on behalf of clients
4. Records of written client requests
5. Any documents prepared by the adviser material to making a
decision how to vote, or that memorialized the basis for the
decision.
8. Review of Policy. At least annually, the Board shall review this Policy
to determine its sufficiency and shall make and approve any changes that it
deems necessary from time to time.
EXHIBIT A - VOTING GUIDELINES
The Funds' and Advisors' proxy voting principles are summarized below, with
specific examples of voting decisions for the types of proposals that are most
frequently presented:
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Category Guideline Voting
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BOARD OF DIRECTOR ISSUES The board of directors' primary role is to
protect the interests of all shareholders.
Key functions of the board are to approve
the direction of corporate strategy, ensure
succession of management and evaluate
performance of the corporation as well as
senior management. The board is accountable
to shareholders, and must operate
independently from management.
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---------------------------------- ---------------------------------------------- ----------------------------------
Routine Elections Generally we will vote with management's Generally FOR
recommendation
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---------------------------------- ---------------------------------------------- ----------------------------------
Board Classification Generally we are opposed to entrenchment Generally AGAINST
mechanisms and will vote against proposals
to classify a board. We prefer annual
election of directors in order that
shareholders have more power to replace
directors deemed to not be acting in the
shareholders' interest.
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Independence of Directors The majority of board members should be We will generally support boards
independent from the corporation, management that have a majority of board
or a majority shareholder. An independent members classified as
member should not be a former employee of independent.
the company or a
representative of a key supplier to or a key
client of the company.
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---------------------------------- ---------------------------------------------- ----------------------------------
Director Indemnification Mandatory indemnification of directors and Generally FOR
officers is
necessary to attract quality candidates.
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---------------------------------- ---------------------------------------------- ----------------------------------
Director Attendance Board membership requires a significant We look for attendance records
amount of time in order for responsibilities to be in the 75% participation
to be executed, and attendance at Board and range.
Committee meetings is noted.
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---------------------------------- ---------------------------------------------- ----------------------------------
Term Limits We are more concerned with the performance Generally AGAINST but will look
of directors and not with the term limits at on a case-by-case basis.
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---------------------------------- ---------------------------------------------- ----------------------------------
Separation of Chair and CEO In most cases it is advisable for there to In most cases we would support a
be a separation between the CEO and the recommendation to separate the
Chair to enhance separation of management Chair from the CEO. Lead
interests and shareholders. directors are considered acceptable,
and in this situation an independent
Corporate Governance committee
must also be in place.
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---------------------------------- ---------------------------------------------- ----------------------------------
Committees of the Board Audit, Compensation, Governance and We support the establishment of
Nominating committees are the most these committees, however
significant committees of the board. independent director membership
on these committees is the
primary concern. Two-thirds
independent membership is
satisfactory, provided that
the chair of each committee
is independent.
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---------------------------------- ---------------------------------------------- ----------------------------------
Audit Process The members of an audit committee should be We will generally support the
independent directors, and the auditor must choice of auditors recommended
also be independent. The auditor should by the Audit Committee. In the
report directly to the Audit committee and event that the auditor supplies
not to management. other services for a fee other
than the audit, each situation
will be reviewed on a
case-by-case basis.
---------------------------------- ---------------------------------------------- ----------------------------------
---------------------------------- ---------------------------------------------- ----------------------------------
VOTING AND ENTRENCHMENT ISSUES
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---------------------------------- ---------------------------------------------- ----------------------------------
Shareholder Right to Call Generally FOR
Special Meeting
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Shareholder Right to Act by Generally FOR
Written Consent
---------------------------------- ---------------------------------------------- ----------------------------------
---------------------------------- ---------------------------------------------- ----------------------------------
Cumulative Voting Our experience has been that cumulative Generally AGAINST, although we
voting is generally proposed by large may consider if the board has
shareholders who may wish to exert undue been unresponsive to
influence on the board. shareholders.
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---------------------------------- ---------------------------------------------- ----------------------------------
Confidentiality of Like any other electoral system, the voting We will support any proposals to
Shareholder Voting at annual and special meetings should be introduce or maintain
confidential and free from any potential confidential voting.
coercion and/or impropriety.
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---------------------------------- ---------------------------------------------- ----------------------------------
Size of Board of Directors Generally boards should be comprised of a The independence of the board is
minimum of seven to a maximum of fifteen. a greater concern than the
However the complexity of the company has an number of members. However
impact on required board size. should a change in board size be
proposed as potentially an
anti-takeover measure we would
vote against.
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---------------------------------- ---------------------------------------------- ----------------------------------
COMPENSATION ISSUES
---------------------------------- ---------------------------------------------- ----------------------------------
---------------------------------- ---------------------------------------------- ----------------------------------
Director Compensation Directors should be compensated fairly for We support recommendations where
the time and expertise they devote on behalf a portion of the remuneration is
of shareholders. We favor directors to be in the form of common
personally owning shares in the corporation, stock. We do not support options
and that they receive a substantialportion for directors, and do not
of their remuneration in the form of shares. support retirement bonuses or
benefits for directors.
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---------------------------------- ---------------------------------------------- ----------------------------------
MANAGEMENT COMPENSATION Compensation plans for executives should be Executive compensation will be
designed to attract and retain the right considered on a case-by-case
people with exceptional skills to manage the basis.
company successfully long-term. These plans
should be competitive within the company's
respective industry without being excessive
and should attempt to align the executive's
interests with the long-term interest of
shareholders.
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---------------------------------- ---------------------------------------------- ----------------------------------
Stock Options and Incentive Compensation plans should be designed to We will not support plans with
Compensation Plans reward good performance of executives. They options priced below current
should also encourage management to own market value or the lowering of
stock so as to align their financial the exercise price on any
interests with those of the shareholders. It previously granted options. We
is important that these plans are disclosed will not support any plan to
the shareholders in detail for their amendment that is not capped or
approval. that results in anything but negligible
dilution. We believe that shareholders
should have a say in all aspects of
option plans and therefore will not
support omnibus stock option plans
or plans where the Board is given
discretion to set the terms. Plans
will be considered on a case-by-case
basis.
---------------------------------- ---------------------------------------------- ----------------------------------
---------------------------------- ---------------------------------------------- ----------------------------------
Adopt/Amend Employee Stock Considered on a case-by-case
Purchase Plans basis.
---------------------------------- ---------------------------------------------- ----------------------------------
---------------------------------- ---------------------------------------------- ----------------------------------
Golden Parachutes Although we believe that "golden parachutes" Generally opposed but will
may be a good way to attract, retain and consider on a case-by-case basis.
encourage objectivity of qualified
executives by providing financial security
in the case of a change in the structure or
control of a company, golden parachutes can
be excessive.
---------------------------------- ---------------------------------------------- ----------------------------------
---------------------------------- ---------------------------------------------- ----------------------------------
Require Shareholder Generally FOR
Approval of Golden
Parachutes
---------------------------------- ---------------------------------------------- ----------------------------------
---------------------------------- ---------------------------------------------- ----------------------------------
TAKEOVER PROTECTIONS Some companies adopt shareholder rights We will review each situation on
plans that incorporate anti-takeover a case-by-case basis. We will
measures, which may include: poison pills, generally support proposals that
crown jewel defense, payment of greenmail, protect the rights and share
going private transactions, leveraged value of shareholders.
buyouts, lock-up arrangements, Fair price
amendments, Re-incorporation. Rights plans
should be designed to ensure that all
shareholders are treated equally in the
event there is a change in control of a
company. These plans should also provide the
Board with sufficient time to ensure that
the appropriate course of action is chosen
to ensure shareholder interests have been
protected. However, many shareholder rights
plans can be used to prevent bids that might
in fact be in the shareholders best
interests. Depending on their contents,
these plans may also adversely influence
current share prices and long-term
shareholder value.
---------------------------------- ---------------------------------------------- ----------------------------------
---------------------------------- ---------------------------------------------- ----------------------------------
Dual Class Shares It is not unusual for certain classes of Generally AGAINST.
shares to have more than one vote per share.
This is referred to as a dual class share
structure and can result in a minority of
shareholders having the ability to make
decisions that may not be in the best
interests of the majority of shareholders.
---------------------------------- ---------------------------------------------- ----------------------------------
---------------------------------- ---------------------------------------------- ----------------------------------
Super-Majority Voting Super-majority voting (e.g., 67% of votes Generally AGAINST. We will
Provisions cast or a majority of outstanding shares), generally oppose proposals for
although fairly common, can, from a voting requirements that are
practical point of view, be difficult to greater than a majority of votes
obtain, and essentially are a bar from cast. That said, we will review
effective challenges to entrenched supermajority proposals on a
management, regardless of performance or case-by-case basis.
popularity. A very high requirement can be
unwieldy and therefore not in the best
interest of the majority of shareholders.
---------------------------------- ---------------------------------------------- ----------------------------------
---------------------------------- ---------------------------------------------- ----------------------------------
Issuance of Authorized Generally FOR
Shares
---------------------------------- ---------------------------------------------- ----------------------------------
---------------------------------- ---------------------------------------------- ----------------------------------
Issuance of Unlimited or Corporations may increase their authorized Generally AGAINST. We will
Additional Shares number of shares in order to implement a generally oppose proposals to
stock split, to support an acquisition or increase the number of
restructuring plan, to use in a stock option authorized shares to
plan or to implement an anti-takeover plan. "unlimited", but will consider
Shareholders should approve of the specific any proposals to increase the
business need for the increase in the number number of authorized shares on a
of shares and should understand that the case-by-case basis for a valid
issuance of new shares can have a business purpose.
significant effect on the value of existing
shares.
---------------------------------- ---------------------------------------------- ----------------------------------
---------------------------------- ---------------------------------------------- ----------------------------------
Shareholder Proposals Shareholders should have the opportunity to Shareholder proposals will be
raise their concerns or issues to company reviewed on a case-by-case basis.
management, the board and other
shareholders. As long as these proposals
deal with appropriate issues and are not for
the purposes of airing personal grievances
or to obtain publicity, they should be
included on the proxy ballot for
consideration.
---------------------------------- ---------------------------------------------- ----------------------------------
---------------------------------- ---------------------------------------------- ----------------------------------
OTHER MATTERS
---------------------------------- ---------------------------------------------- ----------------------------------
---------------------------------- ---------------------------------------------- ----------------------------------
Stock Repurchase Plans Generally FOR
---------------------------------- ---------------------------------------------- ----------------------------------
---------------------------------- ---------------------------------------------- ----------------------------------
Stock Splits Generally FOR
---------------------------------- ---------------------------------------------- ----------------------------------
---------------------------------- ---------------------------------------------- ----------------------------------
Require Shareholder Generally FOR
Approval to issue Preferred
Stock
---------------------------------- ---------------------------------------------- ----------------------------------
---------------------------------- ---------------------------------------------- ----------------------------------
Corporate Loans to Employees Corporate loans, or the guaranteeing of Generally AGAINST.
loans, to
enable employees to purchase company stock or
options should be avoided. These types of
loans can be risky if the company stock
declines or the employee is terminated.
---------------------------------- ---------------------------------------------- ----------------------------------
---------------------------------- ---------------------------------------------- ----------------------------------
Blank-cheque Preferred The authorization of blank-cheque preferred Generally AGAINST.
Shares shares gives the board of directors'
complete discretion to fix voting, dividend,
conversion and other rights and privileges.
Once these shares have been authorized, the
shareholders have no authority to determine
how or when they will be allocated. There
may be valid business reasons for the
issuance of these shares but the potential
for abuse outweighs the benefits.
---------------------------------- ---------------------------------------------- ----------------------------------
---------------------------------- ---------------------------------------------- ----------------------------------
FOOTNOTES:
(1) This policy is adopted for the purpose of the disclosure requirements
adopted by the Securities and Exchange Commission, Releases No. 33-8188,
34-47304, IC-25922.
(2) As it is used in this document, the term "conflict of interest" refers to a
situation in which the Adviser or affiliated persons of the adviser have a
financial interest in a matter presented by a proxy other than the
obligation it incurs as investment adviser to the Funds which compromises
the Adviser's independence of judgment and action with respect to the
voting of the proxy.
(3) This disclosure shall be included in the registration statement next filed
on behalf of the Funds after July 1, 2003.
(4) This disclosure shall be included in the registration statement next filed
on behalf of the Funds after August 31, 2004.
(5) This disclosure shall be included in the report next filed on behalf of the
Funds after July 1, 2003.
(6) This disclosure shall be included in the report next filed on behalf of the
Funds after August 31, 2004.
Part C. Other Information.
Item 24. Financial Statements and Exhibits
1. Financial Statements:
a. Financial Statements included in Part A (Prospectus) of this
Registration Statement:
b. Financial Statements included in Part B (Statement of Additional
Information) of this Registration Statement.
i. Report of Independent Accountants. (1)
ii. Statement of assets and liabilities as of November 30, 2006.
(1)
iii. Statement of operations for the year ended November 30,
2006. (1)
iv. Statement of cash flows for the year ended November 30,
2006. (1)
v. Statement of changes in net assets for each of the years
ended November 30, 2005 and 2006. (1)
vi. Schedule of Investments as of November 30, 2006. (1)
2. Exhibits
a. Fund's Charter
i. Articles of Incorporation of the Fund dated October 27, 1972
(2)
ii. Articles of Amendment dated October 9, 1991 (2)
iii. Articles of Amendment dated November 20, 1998 (2)
iv. Articles Supplementary dated January 27, 2000(2)
v. Articles of Amendment dated April 26, 2002(2)
vi. Articles of Amendment dated October 21, 2002(2)
vii. Articles of Amendment dated October 23, 2002(2)
viii. Articles Supplementary dated April 8, 2004(3)
ix. Articles of Amendment and Restatement dated May 18, 2004(3)
x. Articles of Amendment dated April 25, 2005(3)
xi. Articles of Amendment dated May 25, 2005(3)
xii. Articles Supplementary Creating and Fixing the Rights of
Preferred Stock dated October 14 , 2005(4)
b. Amended and Restated By-laws of the Fund (7)
c. Not applicable
d. Share certificate and Subscription Documents
i. Specimen certificate for common shares (6)
ii. Form of Notice of Intent (6)
iii. Form of Subscription Certificate (6)
iv. Form of Broker Split Request (6)
v. Form of Broker Certification and Request for Additional
Rights (6)
vi. Form of Nominee Holder Over-Subscription Certification (6)
vii. Form of DTC Over-Subscription Form (6)
viii. Form of Notice of Guaranteed Delivery (6)
ix. Information Agent Fee Agreement among the Fund and Morrow &
Co., Inc. (6)
x. Subscription Agent Fee Agreement among the Fund and Colbent
Corporation. (6)
e. Dividend Reinvestment Plan (3)
f. Not applicable
g. Investment Advisory Agreements
i. Amended and Restated Investment Advisory between the Fund
and Boulder Investment Advisers, L.L.C. ("BIA") dated April
26, 2002 (2)
ii. Amended and Restated Investment Advisory Agreement between
the Fund and Stewart Investment Advisers, Ltd. ("SIA") dated
April 26, 2002 (2)
h. Form of Purchase Agreement between the Fund, BIA and Merrill
Lynch (5)
i. Not applicable.
j. Custody Agreement between the Fund and Investors Bank & Trust
Company (3)
k. Other Agreements
i. Transfer Agency Agreement between the Fund and PFPC, Inc.
(3)
ii. Administration Agreement between the Fund and Fund
Administrative Services, LLC. (3)
iii. Amendment to Administration Agreement between the Fund and
Fund Administrative Services, LLC (3)
iv. Administration Agreement between the Fund and Investors Bank
& Trust Company (3)
v. Collateral Securities Account Agreement (3)
vi. Loan and Pledge Agreement between the Fund and Custodial
Trust Company (3)
vii. Delegation Agreement between the Fund and Investors Bank &
Trust Company (3)
viii. Auction Agency Agreement between the Fund and Deutsche Bank
Americas Trust Company (5)
ix. Broker-Dealer Agreement between the Fund, Bankers Trust
Company & Merrill Lynch (5)
l. Opinions of Counsel
i. Opinion and consent of Paul Hastings Janofsky & Walker LLP
(6)
ii. Opinion and consent of Venable LLP (6)
m. Consent to Service of Process with respect to Stewart West Indies
Trading Company, Ltd. (SIA) (5)
n. Consent of Deloitte & Touche LLP. (6)
o. Not applicable
p. Not applicable
q. Not applicable
r. Code of Ethics of the Fund, BIA and SIA (3)
s. Power of Attorney (included on signature page)
t. Financial Data Schedule (EDGAR version only)
(1) Incorporated herein by reference to the Registrant's Form N-CSR filed on
February 8, 2007, for year ending November 30, 2006 (Investment Company Act File
No. 811-02328; EDGAR Accession No. 0001104659-07-008716).
(2) Incorporated herein by reference to Amendment No. 8 to the Registration
Statement on Form N-2/A of the Registrant filed on November 20, 2002 (Securities
Act File No. 33-100634; EDGAR Accession Number 0000950117-02-002800.
(3) Incorporated hereby by reference to Amendment No. 9 to the Registration
Statement on Form N-2/A of the Registrant filed on July 11, 2005 (Securities Act
File No. 333-126503; EDGAR Accession Number 0001099343-05-000027.
(4) Incorporated hereby by reference to Amendment No. 11 to the Registration
Statement on Form N-2/A of the Registrant filed on October 11, 2005 (Securities
Act File No. 333-126503; EDGAR Accession Number 0001099343-05-000040.
(5) Incorporated hereby by reference to Amendment No. 10 to the Registration
Statement on Form N-2/A of the Registrant filed on October 7, 2005 (Securities
Act File No. 333-126503; EDGAR Accession Number 0001099343-05-000038.
(6) To be filed by amendment.
(7) To be filed herewith.
Item 25. Marketing Arrangements. Not Applicable.
Item 26. Other Expenses of Issuance and Distribution. The Fund expects to incur
approximately $152,000 of expenses in connection with the Offering. The
following table identifies the significant expenses associated with the
Offering.
NYSE Fees $26,000
Printing Costs $14,000
Fees and Expenses of Qualification Under State Securities Laws $ -
Auditing Fees and Expenses $5,000
Legal Fees and Expenses $60,000
Subscription Agent Expense $20,000
Information Agent Expenses $9,000
Street Account Proxy - Direct Bill from ADP $8,000
Underwriter Expenses $ -
Postage and Delivery Charges $5,000
Miscellaneous $5,000
TOTAL ESTIMATED COSTS $152,000
Item 27. Persons controlled by or under common control with the Fund. None.
Item 28. Number of Holders of Shares.
--------------------------------------------------------------- ---------------------------------------------------------
Title of Class Record Holders as of May 4, 2007
--------------------------------------------------------------- ---------------------------------------------------------
Common Stock, par value $.01 per share 11,383,335
--------------------------------------------------------------- ---------------------------------------------------------
Taxable Auction Market Preferred Stock,
Par value $.01 per share 1,000
--------------------------------------------------------------- ---------------------------------------------------------
Item 29. Indemnification. Section 2-418 of the General Corporation Law of the
State of Maryland, Article VIII of the Registrant's Articles of Incorporation
(incorporated by reference as an Exhibit to this Registration Statement),
Article 5.2 of the Registrant's By-laws (incorporated by reference as an Exhibit
to this Registration Statement), the Investment Advisory Agreements
(incorporated by reference as an Exhibit to this Registration Statement) provide
for indemnification. Insofar as indemnification for liabilities arising under
the Securities Act of 1933 (the "Act") may be permitted to directors, officers
and controlling persons of the Registrant, pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
Item 30. Business and Other Connections of the Investment Adviser. Registrant is
fulfilling the requirement of this Item 30 to provide a list of the officers and
directors of its investment advisers, together with information as to any other
business, profession, vocation or employment of a substantial nature engaged in
by that entity or those of its officers and directors during the past two years,
by incorporating herein by reference the information contained in the current
Form ADV filed with the Securities and Exchange Commission by each of BIA and
SIA on March 29, 2007 pursuant to the Investment Advisers Act of 1940, as
amended.
Item 31. Location of Accounts and Records.
Fund Administrative Services, L.L.C. Co-Administrator
2344 Spruce Street, Suite A
Boulder, CO 80302
Investors Bank & Trust Company Co-Administrator
200 Clarendon Street
PO Box 9130
Boston, MA 02117
PFPC, Inc. Transfer Agent for Common Shares
400 Bellevue Parkway
Wilmington, DE 19809
Investors Bank & Trust Company Custodian
200 Clarendon Street
PO Box 9130
Boston, MA 02117
Deutsche Bank Trust Company Americas Transfer Agent for AMPs
280 Park Avenue, 9th Floor
New York, NY 10017
Item 32. Management Services. Not applicable.
Item 33. Undertakings
1. The Registrant hereby undertakes to suspend the offering of the Rights
until it amends its Prospectus if (a) subsequent to the effective date
of its Registration Statement, the net asset value per share declines
more than 10 percent from its net asset value per share as of the
effective date of the Registration Statement or (b) the net asset
value per share increases to an amount greater than the estimated net
proceeds from the Offering as stated in the Prospectus.
2. Not applicable.
3. Not applicable.
4. Not applicable.
5. The Registrant hereby undertakes that:
a. for the purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of a registration statement in reliance
on Rule 430A and contained in the form of prospectus filed by the
Registrant under Rule 497(h) under the Securities Act of 1933
shall be deemed to be part of the Registration Statement as of
the time it was declared effective.
b. for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of
the securities at that time shall be deemed to be the initial
bona fide offering thereof.
6. The Registrant hereby undertakes to send by first class mail or other
means designed to ensure equally prompt delivery, within two business
days of receipt of an oral or written request, any Statement of
Additional Information.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant has duly caused this
Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boulder and the State of
Colorado, on the 7th day of May, 2007
BOULDER GROWTH & INCOME FUND, INC.
By: /s/ Stephen C. Miller
President
POWER OF ATTORNEY
KNOW ALL PEOPLE BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen C. Miller and Carl D. Johns, and each and
any of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and his name, place and stead, in
any and all capacities, to sign any or all amendments (including post-effective
amendments) to the Registration Statement for the Boulder Total Return Fund,
Inc. on Form N-2, and to sign any registration statement that is to be effective
upon filing pursuant to Rule 462 promulgated under the Securities Act of 1933,
as amended, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their substitute or substitutes, may lawfully do or
cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated
Signature Title Date
----------------------------------------------------- ------------------------------------------------------------------------------
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/s/ Stephen C. Miller Chief Executive Officer and President May 7, 2007
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/s/ John S. Horejsi* Director May 7, 2007
/s/ Susan L. Ciciora* Director May 7, 2007
/s/ Joel L. Looney* Director and Chairman of the Board May 7, 2007
/s/ Dr. Dean L. Jacobson* Director May 7, 2007
/s/ Richard I. Barr* Director May 7, 2007
/s/ Carl D. Johns* Chief Financial Officer, Chief Accounting Officer, May 7, 2007
Vice President and Treasurer
*By Stephen C. Miller, attorney in fact