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[BOULDER TOTAL RETURN FUND, INC. LOGO]
QUARTERLY REPORT
Dear Shareholder:
The Boulder Total Return Fund, Inc. is headed down a new road. On August
27, 1999, shareholders approved the following: a change in the Fund's objective
to total return; three new advisers for the Fund -- Boulder Investment Advisers,
Stewart Investment Advisers, and Spectrum Asset Management; the Fund's new
name -- Boulder Total Return Fund, Inc.; and the amendment of certain investment
restrictions. Approximately 70% of all outstanding shares returned their
proxies, and 92% of those shareholders returning their proxies voted in favor of
all proposals. Of the non-Horejsi shares voted at the meeting (affiliates of Mr.
Horejsi own approximately 42% of the common shares), more than 75% were voted in
favor of all the proposals, including changing the Fund's objective. This was a
good turnout, and we'd like to thank all shareholders for their enthusiastic
support.
If you've been searching in your paper for the Fund's stock quote under the
"P's" for the Preferred Income Management Fund (the former symbol and name for
the Fund), you need to start looking under "B" for Boulder Total Return Fund.
It's still traded on the New York Stock Exchange, but it has a new symbol,
"BTF." Furthermore, in light of the Fund's new objective, the Fund's NAV is now
reported under a new Lipper investment objective category -- "General
Equity" -- and not "Preferred Funds." Lipper publishes our NAV on Monday of each
week in The Wall Street Journal and Barron's.
Now, with those changes approved, we can begin investing in common stocks
more significantly. In fact, we have already bought a few, most notably
Berkshire Hathaway -- both the "A" shares and the "B" shares. Berkshire Hathaway
shares are off their highs on the year, and we believe over the long term this
is a sound investment. We have not set rigid asset allocation goals, nor do we
have any specified time frame over which we would like to get invested in common
stocks. We feel that by setting such goals, we may be forced to invest at times
when we'd rather not.
Even though we've been buying some non-dividend paying common stocks, there
should be ample earnings left in the tank to continue paying the Fund's monthly
dividend for the remainder of 1999. After that, we'll have to take a fresh look
at the portfolio and determine the dividend, at which time a switch will
probably be made to a quarterly dividend payout, rather than monthly. As we have
said, the Fund's dividend will decrease. This is not bad! We know that a
dividend cut by an income fund is viewed unfavorably. Funds often cut their
dividends when their income declines due to high coupon issues being called away
from them (frequently at inopportune times). However, we're not an income fund
anymore, and we will be reducing the dividend for an entirely different reason,
namely, investing in common stocks. Since the size and availability of our
dividend is in large part dependent on how quickly the Fund becomes invested in
common stocks, and since our investments in commons will depend on what the
market gives us, we are unable to predict what, if any, dividend the Fund will
be capable of paying in the future. As you know, the Fund must pay its preferred
shareholders first, and whatever is left over will go into the common
shareholder's pocket.
Regarding realized gains and losses, the Fund stands at just over $0.50 per
share of net realized gains, virtually all of which were realized in the first 6
months of the year. Because interest rates have gone higher this year, the value
of most preferreds has decreased. So the portfolio has some securities with
unrealized losses. If those losses can be realized before year-end (11/30), the
size of the year-end payout can be reduced, which makes sense to do, since it's
a taxable event.
The Fund's net asset value has gone from $15.01 at the end of last quarter
to $14.22 at the end of this quarter. Some of this was due to an increase in
interest rates, and some due to preferred stocks dropping more than treasury
securities. Please read the comments from Spectrum, the Fund's preferred stock
adviser. After you take into account the 3 monthly dividends received, the total
return on the NAV for the quarter ended August 31st was -3.4%.
We are enthusiastic about the shareholder support we received on the recent
proposals. We have high expectations of ourselves and the Fund and look forward
to a productive future.
Sincerely,
/s/ Stephen C. Miller
Stephen C. Miller
President
August 31, 1999
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BOULDER TOTAL RETURN FUND, INC.
SUMMARY OF INVESTMENTS
AUGUST 31, 1999 (UNAUDITED)
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<TABLE>
<CAPTION>
PERCENT OF
VALUE TOTAL NET
(000'S) ASSETS
-------- ----------
<S> <C> <C>
ADJUSTABLE RATE PREFERRED STOCKS
Utilities.............................................. $ 4,426 2.1%
Banking................................................ 21,902 10.3
Industrial............................................. 472 0.2
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Total Adjustable Rate............................. 26,800 12.6
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FIXED RATE PREFERRED STOCKS AND SECURITIES
Utilities.............................................. 59,718 28.3
Banking................................................ 46,275 21.9
Financial Services..................................... 27,190 12.8
Insurance.............................................. 19,125 9.0
Miscellaneous Industries............................... 13,758 6.5
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Total Fixed Rate.................................. 166,066 78.5
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TOTAL PREFERRED STOCKS AND SECURITIES....................... 192,866 91.1
COMMON STOCKS
Utilities.............................................. 233 0.1
Insurance.............................................. 5,348 2.5
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Total Common Stocks............................... 5,581 2.6
REPURCHASE AGREEMENT........................................ 9,998 4.7
PURCHASED PUT OPTIONS....................................... 3,625 1.7
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TOTAL INVESTMENTS........................................... 212,070 100.1
OTHER ASSETS AND LIABILITIES (NET).......................... (287) (0.1)
-------- -----
TOTAL NET ASSETS.................................. $211,783 100.0%
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</TABLE>
FINANCIAL DATA
PER SHARE OF COMMON STOCK (UNAUDITED)
- -------------------------------------------------
<TABLE>
<CAPTION>
DIVIDEND
DIVIDEND NET ASSET NYSE REINVESTMENT
PAID VALUE CLOSING PRICE Price (1)
-------- --------- ------------- ------------
<S> <C> <C> <C> <C>
December 31, 1998........................................... $0.820 $15.27 $13.1250 $13.22
January 31, 1999............................................ 0.077 15.17 12.0000 12.08
February 28, 1999........................................... 0.077 15.19 12.1875 12.22
March 31, 1999.............................................. 0.077 15.11 12.0000 11.97
April 30, 1999.............................................. 0.077 15.13 11.8130 11.85
May 31, 1999................................................ 0.077 15.01 11.7500 11.77
June 30, 1999............................................... 0.077 14.82 11.5000 11.52
July 31, 1999............................................... 0.077 14.50 11.3750 11.30
August 31, 1999............................................. 0.077 14.22 11.3750 11.34
</TABLE>
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(1) Whenever the net asset value per share of the Fund's common stock is less
than or equal to the market price per share on the payment date, new shares
issued will be valued at the higher of net asset value or 95% of the then
current market price. Otherwise, the reinvestment shares of common stock
will be purchased in the open market.
2
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BOULDER TOTAL RETURN FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS(1)
NINE MONTHS ENDED AUGUST 31, 1999 (UNAUDITED)
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OPERATIONS:
Net investment income........................................ $ 9,402,357
Net realized gain on investments sold........................ 4,334,613
Net unrealized depreciation of investments during the
period...................................................... (14,625,208)
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Net decrease in net assets from operations............... (888,238)
DISTRIBUTIONS:
Dividends paid from net investment income to MMP*
Shareholders................................................ (2,381,520)
Distributions paid from net realized capital gains to
MMP* Shareholders(3)........................................ (254,263)
Dividends paid from net investment income to Common
Stock Shareholders(2)....................................... (7,474,760)
Distributions paid from net realized capital gains to
Common Stock Shareholders(3)................................ (6,047,683)
------------
Net decrease in net assets............................... (17,046,464)
NET ASSETS:
Beginning of period.......................................... 228,829,064
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End of period................................................ $211,782,600
============
FINANCIAL HIGHLIGHTS(1)
NINE MONTHS ENDED AUGUST 31, 1999 (UNAUDITED)
FOR A COMMON SHARE OUTSTANDING THROUGHOUT THE PERIOD.
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OPERATING PERFORMANCE:
Net asset value, beginning of period....................... $ 16.06
------------
Net investment income...................................... 1.00
Net realized gain and unrealized depreciation on
investments............................................... (1.11)
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Net decrease in net asset value resulting from
investment operations..................................... (0.11)
DISTRIBUTIONS:
Dividends paid from net investment income to MMP*
Shareholders.............................................. (0.25)
Distributions paid from net realized capital gains to
MMP* Shareholders(3)...................................... (0.03)
Dividends paid from net investment income to Common
Stock Shareholders(2)..................................... (0.79)
Distributions paid from net realized capital gains to
Common Stock Shareholders(3).............................. (0.64)
Change in accumulated undeclared dividends on MMP*
Shareholders.............................................. (0.02)
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Total distributions........................................ (1.73)
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Net asset value, end of period............................. $ 14.22
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Market value, end of period................................ $ 11.375
============
Common shares outstanding, end of period................... 9,416,743
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RATIOS TO AVERAGE NET ASSETS AVAILABLE TO COMMON STOCK
SHAREHOLDERS:
Net investment income...................................... 6.16%**
Operating expenses......................................... 1.88%**
SUPPLEMENTAL DATA:
Portfolio turnover rate.................................... 36%
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Ratio of operating expenses to Total Average Net Assets
including MMP*............................................... 1.21%**
(1) These tables summarize the nine months ended August 31, 1999 and should be
read in conjunction with the Fund's audited financial statements, including
footnotes, in its Annual Report dated November 30, 1998.
(2) Includes dividends earned, but not paid out, in prior fiscal year.
(3) Paid from capital gains realized, but not paid out, in prior fiscal year.
* Money Market Cumulative Preferred(TM) Stock.
** Annualized.
3
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FROM SPECTRUM ASSET MANAGEMENT
DIRECTORS The 3rd fiscal quarter ended August 31, 1999
Alfred G. Aldridge Jr. was a turbulent quarter for the preferred
Richard I. Barr securities markets, primarily caused by the Fed
James G. Duff raising the Federal Funds rate by 50 basis points
Stewart R. Horejsi (bps) over the period. This was the first time the
Stephen C. Miller Federal Reserve Bank increased the funds rate since
March 1996 and it set off a spread widening trend
(discussed below) across most of the US credit
OFFICERS markets. The continued strong economic growth in
the US has caused Alan Greenspan to become
Stephen C. Miller increasingly nervous with the "new era" economy and
President its ability to grow above trendline (2.5%-3%)
without any meaningful inflationary excesses.
Carl D. Johns Indeed, rising energy prices, union wage increases
Vice President and and a strong orders component of the National
Treasurer Association of Purchasing Managers are some of the
signals that seem to be raising inflationary
Laura C. Rhodenbaugh warning signs. As a result, long-term interest
Secretary rates (which impact the Fund's valuations) have
moved 34 basis points higher during the period from
Stephanie J. Kelley 5.83% to 6.17%. It is possible that long-term
Assistant Secretary interest rates will continue to edge modestly
higher if the Fed increases rates by another 25bps.
This would completely reverse the 75bp rate cut
QUESTIONS CONCERNING YOUR that stemmed from the "flight to quality" events in
SHARES OF THE FUND? the fiscal first quarter ending February 28, 1999.
During the current fiscal period, preferred
If your shares are held in securities were pressured by rising interest
a Brokerage Account rates -- this risk was somewhat offset by the
contact your broker. If adjustments on the purchased put options on
you have physical Treasury futures the Fund uses for hedging. Despite
possession of your shares this hedge, there was some performance slippage
in certificate form, caused by wider spread valuations in preferred and
contact the Fund's capital securities. The wider spreads in preferreds
Transfer Agent & are largely explained by 1) wider spreads overall
Shareholder Servicing in the corporate bond sector, 2) a supply overhang
Agent -- First Data from the 2nd quarter in the $25 par sector, 3)
Investor Services Group, decreased dealer participation in the secondary
Inc. markets and 4) wider municipal bond spreads.
Certainly yields have been higher in preferred
securities, but dollar prices in some cases have
P.O. Box 1376 never been so low.
Boston, MA 02104
1-800-331-1710
/s/ Phil Jacoby
This report is sent to
shareholders of Boulder Phil Jacoby,
Total Return Fund, Inc. Vice President, Spectrum Asset Management
for their information.
It is not a prospectus,
circular or
representation intended
for use in the purchase
or sale of shares of the
Fund or of any
securities mentioned in
this report.
