As filed with the Securities and Exchange Commission on May , 2000
Securities Act Registration No. 333-
Investment Company Registration No. 811-7390
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. 6 (X)
Boulder Total Return Fund, Inc.
(Exact Name of Registrant as Specified In Charter)
1680 38th Street, Suite 800
Boulder, Colorado 80301
(Address of Principal Executive Offices)
(303) 444-5483
(Registrant's Telephone Number, including Area Code)
Stephen C. Miller
1680 38th Street, Suite 800
Boulder, Colorado 80301
(Name and Address of Agent for Service)
Copies to:
Rose F. DiMartino, Esq. Richard T. Prins, Esq.
Willkie Farr and Gallagher Skadden, Arps, Slate, Meagher & Flom LLP
787 7th Avenue Four Times Square
New York, NY 100019-6099 New York, NY 10036
Approximate Date of Proposed Public Offering: As soon as practicable
after the effective date of this Registration Statement.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
Title of Securities Amount Proposed Proposed Amount of
Being Registered Being Maximum Maximum Registration
Registered Offering Aggregate Fee
Price per Offering
Unit Price
Cumulative Auction Rate 775 shares $100,000 $77,500,000 $20,460.00
Preferred Stock
BOULDER TOTAL RETURN FUND, INC.
CROSS REFERENCE SHEET
Part A-Prospectus
Items in Part A of Form N-2 Location in Prospectus
Specified in Prospectus
Item 1. Outside Front Cover . . . . . . . . . . . . Cover page
Item 2. Inside Front and Outside Back Cover Page . . Inapplicable
Item 3. Fee Table and Synopsis . . . . . . . . . . . Inapplicable
Item 4. Financial Highlights . . . . . . . . . . . . Financial Highlights
Item 5. Plan of Distribution . . . . . . . . . . . . Cover Page;
Prospectus Summary;
Underwriting
Item 6. Selling Shareholders . . . . . . . . . . . Inapplicable
Item 7. Use of Proceeds . . . . . . . . . . . . . . Use of Proceeds;
Investment Objective
and Policies
Item 8. General Description of the Registrant . . . Cover Page;
Prospectus
Summary
The Company;
Investment Objective
and Policies
Item 9. Management . . . . . . . . . . . . . . . . . Prospectus
Summary; Management
of the Company
Item 10. Capital Stock, Long-Term Debt, and Other
Securities . . . . . . . . . . . . . . . . Capitalization; Invest
ment Objective and
Policies; Description
of AMPS; the Auction
Item 11. Defaults and Arrears on Senior Securities . Inapplicable
Item 12. Legal Proceedings . . . . . . . . . . . . Inapplicable
Item 13. Table of Contents of the Statement of
Additional Information . . . . . . . . . . Table of Contents of
the Statement of
Additional Information
Part B-Statement of Additional Information
Items In Part B of Form N-2 Location in Statement of
Additional Information
Item 14. Cover Page . . . . . . . . . . . . . . . . Cover Page
Item 15. Table of Contents . . . . . . . . . . . . Back Cover Page
Item 16. General Information and History . . . . . Inapplicable
Item 17. Investment Objective and Policies . . . . .Investment Objective
and Policies;
Investment Policies
and Techniques
Item 18. Management . . . . . . . . . . . . . . . . Management of the
Company
Item 19. Control Persons and Principal Holders of
Securities . . . . . . . . . . . . . . . . Management of the
Company
Item 20. Investment Advisory and Other Services . . Management of the
Company
Item 21. Brokerage Allocation and Other Practices Portfolio Transactions
Item 22. Tax Status . . . . . . . . . . . . . . . . Tax Matters
Item 23. Financial Statements . . . . . . . . . . . Financial Statements
(incorporated by reference)
Part C-Other Information
Items 24-33 have been answered in Part C of this Registration Statement
The information in this Prospectus 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 Prospectus
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.
SUBJECT TO COMPLETION, DATED MAY ___ , 2000
PROSPECTUS
$77,500,000
BOULDER TOTAL RETURN FUND INC.
Cumulative Auction Rate Preferred Stock (the "AMPS")
775 Shares
Liquidation Preference $100,000 Per Share
Boulder Total Return Fund, Inc. is a closed-end, diversified
management investment company. The Company's investment objective
is total return. The Company 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, such as preferred
stocks and bonds. The Company typically invests in common stocks
of U.S.-based companies, though it is not limited to investing
in the U.S. stock market. The Company anticipates a low turnover
rate in its portfolio of common stocks and seeks to invest in
stocks that have a proven track record of earnings, and the
prospect of increased future value through growth in revenues and
profits. The Company has the flexibility to invest in companies of
any size; however, it is expected that it will not make significant
investments in start-up companies, initial public offerings, non-
public companies, or companies with little or no operating history.
Boulder Investment Advisers, LLC (the "Adviser") acts as the primary
investment adviser to the Company. The address of the Company and the
Adviser is 1680 38th Street, Suite 800, Boulder, Colorado 80301 and
their common telephone number is (303) 444-5483. Spectrum Asset
Management, Inc. ("Spectrum") acts as a sub-adviser to the Company
and its address is 4 High Ridge Park, Stamford, CT 06905,
and telephone number is (203) 322-0189. Stewart West Indies Trading
Company, Ltd. doing its investment advisory business under the name
Stewart Investment Advisers ("SIA") also acts as a sub-adviser to the
Company and its address is Bellerive, Queen Street, St. Peter,
Barbados. Spectrum and SIA are referred to herein as the
"Sub-Advisers". SIA will provide advisory services to the Company
regarding overall asset allocation and common stock investments.
The AMPS will not be listed on an exchange. You may only buy or sell
AMPS through an order placed at an auction with or through a broker-
dealer that has entered into an agreement with the auction agent and
the Company, or in a secondary market maintained by certain broker-
dealers. These broker-dealers are not required to maintain this
market, and it may not provide you with liquidity.
This prospectus contains important information about the Company.
You should read the prospectus before deciding whether to invest
and retain it for future reference. A statement of additional
information, dated , 2000, containing additional information
about the Company, has been filed with the Securities and Exchange
Commission and is incorporated by reference in its entirety into
this prospectus. You can review the table of contents of the
statement of additional information on page __ of this prospectus.
You may request a free copy of the statement of additional
information by calling (____) ___________. You may also obtain the
statement of additional information and other information regarding
the Company on the Securities Exchange Commission's ("SEC") web site
(http://www.sec.gov).
Investing in the AMPS involves certain risks. See "Risks" beginning
on page ___. The minimum purchase amount of the AMPS is $100,000.
Neither the SEC 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.
Per Share Total
Public Offering Price $100,000 $77,500,000
Sales Load $ $
Proceeds to Company (before expenses)1 $ $
1 Offering expenses payable by the Company are estimated to
be $_______________.
The underwriters are offering the AMPS subject to various
conditions. The underwriters expect to deliver the AMPS to
purchasers, in book-entry form, through the facilities of The
Depository Company Trust on or about ___, 2000.
May , 2000
MERRILL LYNCH & CO.
The Company is offering 775 newly issued shares of Auction Rate
Preferred Stock (the "Offering"). We refer to these shares as the
"AMPS" throughout this prospectus and the related statement of
additional information. The dividend rate for the initial dividend
period (the period from the date of issue through ____, 2000) will be
___%, and will be paid on _________, 2000. After the initial dividend
period, the dividend rate on the AMPS for each subsequent dividend
period generally will be determined pursuant to auctions held every 28
days. Prospective purchasers should carefully review the auction
procedures described in this prospectus, including the appendices, and
should note:
* a buy order or sell order is a commitment to buy or sell
AMPS based on the results of an auction;
* auctions will be conducted by telephone; and
* purchases and sales will be settled on the next
business day after the auction.
The Company is required to allocate net capital gains and other
taxable income, if any, proportionately between common shares and
preferred shares, including the AMPS, based on the percentage of
total dividends distributed to each class for that year.
Dividends on the AMPS are cumulative. The AMPS are redeemable,
in whole or in part, at the option of the Company on any date
dividends are paid on the AMPS (except during certain non-call
periods), and will be subject to mandatory redemption, in certain
circumstances, at a redemption price of $100,000 per share plus
accumulated but unpaid dividends to the redemption date (whether or
not declared), plus a premium in certain circumstances.
You should rely only on the information contained in this
prospectus. The Company has not authorized anyone to provide you
with different information. The Company is not making an offer of
these securities in any state where the offer is not permitted. You
should not assume that the information provided by this prospectus
is accurate as of any date other than the date on the front of this
prospectus.
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . 6
FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . 12
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . 12
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . 13
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . 13
INVESTMENT OBJECTIVE AND POLICIES . . . . . . . . . . . . . .14
OTHER INVESTMENT PRACTICES . . . . . . . . . . . . . . . . . 15
Leverage. . . . . . . . . . . . . . . . . . . . . . . . . 15
Hedging . . . . . . . . . . . . . . . . . . . . . . . . . 15
Other Investment Techniques . . . . . . . . . . . . . . . 15
RISKS . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Interest Rate and Hedging Risks . . . . . . . . . . . . . 16
Investments In Common Stocks . . . . . . . . . . . . . . .17
Investments in Real Estate Investment Trusts ("REITs") . .18
Investments in Other Registered Investment Companies("RICs")18
Investments in Preferred Stocks and Bonds . . . . . . . . .18
Auction Risk . . . . . . . . . . . . . . . . . . . . . . . 19
Secondary Market Risk . . . . . . . . . . . . . . . . . . .19
Ratings and Asset Coverage Risk . . . . . . . . . . . . . .20
MANAGEMENT OF THE COMPANY . . . . . . . . . . . . . . . . . . 20
Directors and Officers . . . . . . . . . . . . . . . . . . 20
Investment Adviser . . . . . . . . . . . . . . . . . . . . 20
Beneficial Ownership and Control Persons . . . . . . . . . 25
Investment Philosophy . . . . . . . . . . . . . . . . . . .26
The Investment Advisory Agreement . . . . . . . . . . . . .27
The Administration and Co-Administration Agreements . . . .29
Expenses of The Company . . . . . . . . . . . . . . . . . .31
DESCRIPTION OF AMPS . . . . . . . . . . . . . . . . . . . . . 31
General . . . . . . . . . . . . . . . . . . . . . . . . . .31
Dividends and Dividend Periods . . . . . . . . . . . . . . 33
Redemption . . . . . . . . . . . . . . . . . . . . . . . . 36
Liquidation . . . . . . . . . . . . . . . . . . . . . . . .37
Rating Agency Guidelines and Asset Coverage . . . . . . . .37
Voting Rights . . . . . . . . . . . . . . . . . . . . . . .40
THE AUCTION . . . . . . . . . . . . . . . . . . . . . . . . . 42
General . . . . . . . . . . . . . . . . . . . . . . . . . 42
Auction Procedures . . . . . . . . . . . . . . . . . . . . 43
Secondary Market Trading and Transfer of AMPS . . . . . . .46
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Federal Income Tax Matters . . . . . . . . . . . . . . . . 46
State and Local Tax Matters . . . . . . . . . . . . . . . .47
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . .48
REPURCHASE OF COMMON SHARES . . . . . . . . . . . . . . . . . 48
DESCRIPTION OF CAPITAL STOCK . . . . . . . . . . . . . . . . .49
Common Shares . . . . . . . . . . . . . . . . . . . . . . 49
Preferred Stock . . . . . . . . . . . . . . . . . . . . . .50
Anti-takeover Provisions of the Charter and By-Laws . . . .50
OTHER SERVICE PROVIDERS . . . . . . . . . . . . . . . . . . . 52
UNDERWRITING . . . . . . . . . . . . . . . . . . . . . . . . .52
LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . .53
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
REPORTS TO STOCKHOLDERS . . . . . . . . . . . . . . . . . . . 54
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . 54
TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL INFORMATION 56
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . 57
PROSPECTUS SUMMARY
The following information is a summary of, and is qualified in
its entirety by reference to, more detailed information included
in this prospectus and the Company's statement of additional
information.
The Company . . . . . . . . Boulder Total Return Fund, Inc. is a
diversified, closed-end management
investment company. The Company's
investment objective is total return.
The Company 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, such as preferred stocks
and bonds. The Company typically
invests in common and fixed-income
securities of U.S.-based companies.
See "Investment Policy and Objective".
As of March 31, 2000, the Company had
9,416,743 shares of common stock
outstanding and 775 preferred shares
outstanding. The 775 preferred shares
are Money Market Cumulative Preferred
Stock (the "MMP Shares") which will be
redeemed in their entirety in
conjunction with the Offering out of
the proceeds of the Offering. The
Company's common shares are traded on
the New York Stock Exchange under the
symbol "BTF."
The Offering . . . . . . . . The Company is offering 775 AMPS (the
"Offering). The purchase price for
each Preferred Share is $100,000 plus
accumulated dividends, if any, from
the date the share is first issued.
The AMPS are being offered by Merrill
Lynch & Co. ("Merrill Lynch").
Investment Objective and
Policies . . . . . . . . . . The Company's investment
objective is total return. The Company
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, such as preferred stocks
and bonds. No assurance can be given
that the Company will achieve its
investment objective.
The Company operates as a
"diversified" investment company, as
defined in the Investment Company Act
of 1940 (the "1940 Act"). Under this
definition, the Company must limit to
5% the portion of its assets invested
in the securities of a single issuer.
This limit does not apply, however, to
25% of the Company's assets, which may
be invested in a single issuer. The
Company intends to concentrate its
common stock investments in a few
issuers and to take large positions in
those issuers, consistent with being a
"diversified" fund. As a result, the
Company is subject to a greater risk
of loss than a fund that diversified
its investments more broadly. Taking
larger positions is also likely to
increase the volatility of the
Company's net asset value reflecting
fluctuation in the value of its large
holdings.
Under normal market conditions, the
Company intends to invest at least 80%
of its net assets in common stocks and
fixed income securities. The term
"fixed income securities" includes
other income producing closed end
funds, REITs, preferred stocks, bonds,
notes, bills, debentures, convertible
securities, bank debt obligations,
repurchase agreements and short-term
money market obligations. The term
"preferred stocks" or "preferreds"
includes traditional preferred stocks
as well as so-called "hybrid," or
taxable, preferred securities and
other similar or related investments.
These hybrid securities, which
currently are marketed under such
acronyms as TOPrS, TIPS, QUIPS, MIPS,
QUIDS, QUICS and Capital Securities,
may be debt-like in key
characteristics.
Investment Adviser . . . . . Boulder Investment Advisers, L.L.C.
(the "Adviser") acts as the primary
investment adviser to the Company and
in conjunction with Stewart Investment
Advisers ("SIA") will be responsible
for the Company's overall investment
strategy and asset allocation. The
address of the Company and the Adviser
is 1680 38th Street, Suite 800,
Boulder Colorado 80301 and their
common telephone number is (303) 444-
5483. Spectrum Asset Management, Inc.
("Spectrum") acts as a sub-adviser to
the Company and manages the Company's
preferred stock portfolio. Spectrum's
address is 4 High Ridge Park,
Stamford, CT 06905, and its telephone
number is (203) 322-0189. Stewart
West Indies Trading Company, Ltd.,
doing its investment advisory business
under the name Stewart Investment
Advisers, also acts as a sub-adviser
to the Company and manages the
Company's common stock portfolio and
is responsible for the Company's asset
allocation and common stock selection.
SIA's address is Bellerive, Queen
Street, St. Peter, Barbados.
Spectrum and SIA are referred to
herein as the "Sub-Advisers".
Risk Factors . . . . . . . . Before investing in AMPS, you should
consider carefully the following risks
of such an investment:
* If an auction fails you may not be
able to sell some or all of your
shares;
* The Company holds a substantial
position (e.g., more than 25% of
its assets) in the common stock of
a single issuer, Berkshire
Hathaway, Inc. and thus, the
volatility of the Company's common
stock, and the Company's net asset
value and its performance in
general, depends disproportionately
more on the performance of such
single issuer than might a more
diversified fund;
* The Company has substantial
investments in non-income producing
common stocks (e.g., Berkshire
Hathaway as described above);
* Because of the nature of the market
for AMPS, you may receive less than
the price you paid for your shares
if you sell them outside of the
auction, especially when market
interest rates are rising;
* A rating agency could downgrade the
rating assigned to the AMPS, which
could affect liquidity;
* The Company may be forced to redeem
your shares to meet regulatory or
rating agency requirements and may
voluntarily redeem your shares
without your consent;
* In extraordinary circumstances the
Company may not earn sufficient
income from its investments to pay
dividends out of income;
* Market factors, such as declines in
the value of its stock holdings or
increases in interest rates, may
result in a decline in the value of
the Company's investment portfolio
thus reducing the asset coverage
for the AMPS; and
* Adverse developments in the
business affairs of issuers of
securities in which the Company
invests may have a negative impact
on the value of the Company's
portfolio and its income.
Secondary Market Trading . . . .The AMPS will not be listed on a stock
exchange. Instead, you may buy or
sell AMPS at a periodic auction by
submitting orders to a broker-dealer
(a "Broker-Dealer") that has entered
into a separate agreement with the
auction agent and the Company or to a
broker-dealer that has entered into an
agreement with a Broker-Dealer. In
addition to the auctions,
Broker-Dealers and other
broker-dealers may maintain a separate
secondary trading market in AMPS, but
may discontinue this activity at any
time. You may transfer shares outside
of auctions only to or through a
Broker-Dealer, a broker-dealer that
has entered into a separate agreement
with a Broker-Dealer, or other persons
as the Company may agree. There can be
no assurance that a secondary trading
market for the AMPS will develop, or
if it does develop, that it will
provide you with liquidity.
Dividends and Dividend Periods .After the initial dividend period, the
AMPS normally will have a dividend
period consisting of twenty-eight (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 offered hereby
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
Company will pay the initial dividend
for the AMPS on [____________] and
thereafter generally on the business
day following each auction, subject to
certain exceptions.
After the initial dividend period, the
dividend rate for the AMPS will be
determined by auction. The dividend
rate for the initial dividend period
is ___% and the first auction will be
held on ___.
Taxes . . . . . . . . . . . . . Because in normal circumstances the
Company will invest substantially all
of its assets in common and fixed-
income securities that pay dividends
and interest that is not exempt from
regular Federal income tax, the income
you receive will ordinarily be subject
to regular Federal income tax. In
addition, your income may be subject
to state and local taxes. Taxable
income or net realized capital gains
earned by the Company will be
allocated proportionately to holders
of the Company's preferred shares and
common shares, based on the percentage
of total dividends paid to each class
for that year. In addition, income
eligible for the "dividends received
deduction" will be allocated
proportionally to holders of the AMPS
and the Company's common shares.
Accordingly, a portion of the
dividends paid on the AMPS may be
taxable at long-term capital gains
rates, which are lower for individuals
than rates on ordinary income and
short-term capital gain.
Liquidation Preference . . . . The liquidation preference of each
AMPS Share will be $100,000, plus an
amount equal to accumulated but unpaid
dividends (whether or not earned or
declared) plus the premium, if any,
resulting from the designation of a
premium call period.
Ratings . . . . . . . . . . . . It is a condition to their issuance
that the AMPS be issued with a rating
of "aa1" from Moody's and "AA" from
S&P. 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 S&P by the Company and
the Adviser 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.
Redemption . . . . . . . . . . Holders of AMPS will not have the
right to cause the Company to redeem
their shares. The Company may,
however, be required by applicable law
or by rating agency guidelines to
redeem the AMPS if, for example, the
Company 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 Company may also voluntarily
redeem the AMPS without your consent.
Voting Rights . . . . . . . . . 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 Company 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 Company 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
Company's charter, the 1940 Act and
Maryland law.
FINANCIAL HIGHLIGHTS
The table below sets forth certain specified information
for a share of common stock of the Company outstanding throughout each
period presented. The financial highlights for each period presented
have been audited by PricewaterhouseCoopers LLP, the Company's
independent auditors, whose report covering each of the five years in
the period ended November 30, 1999, is included in the Company's most
recent Annual Report and is incorporated by reference in the statement
of additional information. The financial highlights should be read in
conjunction with the financial statements and notes thereto included
in the Company's most recent Annual Report, which is available without
charge from the Company.
[INSERT FINANCIALS]
THE COMPANY
Boulder Total Return Fund, Inc. (the "Company") is a diversified,
closed-end management investment company. The Company was
incorporated under the laws of the State of Maryland on [December 21,
1992], and is registered under the Investment Company Act of 1940 (the
"1940 Act"). The address of the Company is 1680 38th Street, Suite
800, Boulder Colorado 80301 and its telephone number is (303) 444-
5483.
The Company commenced investment operations on [ ], upon the
closing of the initial public offering of [ ] of its common shares.
The net proceeds of such offering were approximately $[ ] million.
Prior to August, 1999, the Company's investment objective was
"high current income consistent with preservation of capital". On
August 27, 1999, a special shareholders meeting was held at which the
Company's shareholders approved, among other things:
* A change in the Company's investment objective from "high current
income consistent with preservation of capital" to total return;
* Three new advisers for the Company (e.g., Boulder Investment
Advisers, LLC, Spectrum Asset Management, and Stewart Investment
Advisers);
* A new name for the Company (e.g., from Preferred Income
Management Fund Incorporated to Boulder Total Return Fund, Inc.); and
* The amendment of certain investment restrictions consistent
with the Company's new investment objective.
The Company has outstanding 775 shares of Money Market
Cumulative Preferred Shares (the "MMP Shares"). The MMP Shares were
issued with a liquidation preference per share of $100,000, plus
accumulated and unpaid dividends. The MMP Shares will be redeemed
in conjunction with the Offering out of the proceeds from the
Offering.
As of March 31, 2000, there were shares issued and outstanding
as follows:
Title and Class Amount Authorized Amount Held by Amount
Company or for Outstanding
Its Account
Common Stock 240,000,000 0 9,416,742
Preferred Stock 10,000,000 0 775
The Company's common shares are traded on the New York Stock Exchange
under the symbol "BTF."
USE OF PROCEEDS
The net proceeds of the Offering will be $[ ], after payment of
offering expenses (estimated to be [$300,000]) and the sales load.
The net proceeds of the offering will be used to redeem the MMP
Shares and thus will be invested in accordance with the Company's
investment objective and policies as stated below. To the extent that
all of the proceeds cannot be so invested, pending such investment,
they will be invested in short-term, high quality securities.
CAPITALIZATION
The following table sets forth the unaudited capitalization of
the Company as of November 30, 1999, and as adjusted to give effect to
the issuance of the AMPS pursuant to the Offering.
[INSERT CAPITALIZATION TABLE]
INVESTMENT OBJECTIVE AND POLICIES
The Company's investment objective is total return. The Company
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, such as other income paying closed end funds ("RICs"),
real estate investment trusts ("REITs"), preferred stocks and bonds.
No assurance can be given that the Company will achieve its investment
objective.
The Company operates as a "diversified" investment company, as
defined in the 1940 Act. Under this definition, the Company must limit
to 5% the portion of its assets invested in the securities of a single
issuer. This limit does not apply, however, to 25% of the Company's
assets, which may be invested in a single issuer. The Company intends
to concentrate its common stock investments in a few issuers and to
take large positions in those issuers, consistent with being a
"diversified" fund. As a result, the Company is subject to a greater
risk of loss than a fund that diversified its investments more
broadly. Taking larger positions is also likely to increase the
volatility of the Company's net asset value reflecting fluctuation in
the value of its large holdings.
Under normal market conditions, the Company intends to invest at
least 80% of its net assets in common stocks and fixed income
securities. The term "fixed income securities" includes RICs whose
objective is income, REITs, preferred stocks, bonds, notes, bills,
debentures, convertible securities, bank debt obligations, repurchase
agreements and short-term money market obligations. The term
"preferred stocks" or "preferreds" includes traditional preferred
stocks as well as so-called "hybrid," or taxable, preferred securities
and other similar or related investments. These hybrid securities,
which currently are marketed under such acronyms as TOPrS, TIPS,
QUIPS, MIPS, QUIDS, QUICS and Capital Securities, may be debt-like in
key characteristics.
The Company may, for temporary defensive purposes, allocate a
higher portion of its assets to preferred stocks, or cash and cash
equivalents. For this purpose, cash equivalents consist of short-term
(less than twelve months to maturity) U.S. Government securities,
certificates of deposit and other bank obligations, investment grade
corporate bonds and other debt instruments, and repurchase agreements.
Under normal circumstances, the Company will not have more than 10% of
its assets in cash or cash equivalents.
The Company's portfolio will be invested primarily in a
combination of fixed income securities and common stocks. The
Company's common stocks are expected to have greater risk exposure and
reward potential over time than its investments in fixed-income
securities, while its fixed-income securities are expected to produce
greater income than its common stocks. The volatility of common stock
prices has historically been greater than fixed-income securities, and
as the Company continues to shift a greater portion of its assets into
common stocks, the volatility of the Company's net asset value may
also increase. The time horizon for the Company to achieve its
objective of total return will likely be longer than for a fund that
invests solely for income.
Except for the Company's investment objective and the Company's
fundamental investment restrictions described below, the percentage
limitations and investment policies set forth in this Prospectus can
be changed by the Board of Directors without shareholder approval.
OTHER INVESTMENT PRACTICES
Leverage
Since February 1993, the Company has been leveraged with $77.5
million of the MMP Shares and, after redemption of the MMP Shares and
issuance of the AMPS, it is intended that the Company will remain
leveraged to the same degree with the AMPS (i.e., $77.5 million). It
is expected that as long as the Company utilizes the leverage, it will
maintain an investment in income-producing securities sufficient to
pay the expenses of the Company and to service the dividends payable
on the AMPS.
Hedging
Historically the Company had entered into certain hedging
transactions to offset some of the interest rate risk associated with
its preferred stock portfolio when 100% of the Company's assets were
in preferred stocks. However, due to the cost of hedging, and the
smaller percentage of the Company's assets invested in fixed income
securities, the Company does not intend to continue to hedge its fixed
income securities.
Other Investment Techniques
The Company may engage in other types of transactions, including,
but not limited to, investment in restricted and illiquid securities,
other closed-end mutual funds or REITs, repurchase and reverse
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 B Other Investment Policies and Techniques" in
the statement of additional information.
RISKS
Risk is inherent in all investing. Investing in any investment
company security involves risk, including the risk that you may
receive little or no return on your investment or that you may lose
part or all of your investment. Therefore, before investing you should
consider carefully the following risks that you assume when you invest
in AMPS.
Interest Rate and Hedging Risks
Since August 27, 1999, at which time the Company changed its
investment objective from "income" to "total return", the Company has
steadily reduced its holdings in preferred stocks and other income
producing investments in an effort to make cash available to the
Adviser to purchase common stocks. It is anticipated that, once the
Company's new investment objective is fully implemented, under normal
market conditions more than 50 percent of its assets will be invested
in common stocks. As a result of implementing the Company's change in
investment objective, the income available for servicing the dividends
payable to holders of the AMPS will decrease significantly from its
historical levels, although it is contemplated that such income will
be more than adequate to pay the expenses of the Company while at the
same time servicing the dividend payable to holders of the AMPS.
Nonetheless, if short-term interest rates rise, the dividend rates on
the AMPS, which are expected to correlate with short-term interest
rates, may rise so that the amount of dividends paid to holders of the
AMPS approaches or exceeds the income from the entire portfolio. If
that occurs, the Company may have to liquidate a portion of its
holdings in order to service dividends to holders of the AMPS.
Dividend rates on fixed rate preferred stocks held by the
Company, as their name implies, would be fixed regardless of the
direction of interest rates. In addition, the market prices of such
fixed rate preferred stocks would tend to (1) decline as interest
rates rose and (2) rise as interest rates fell. See "Risk Factors."
Investments In Common Stocks
The Company expects to invest, under normal market conditions, in
excess of 50 percent of its assets in publicly traded common stocks.
The common stocks are expected to have greater risk exposure and
reward potential over time than the Company's investments in preferred
stocks. The volatility of common stock prices has historically been
greater than fixed income securities, and as the Company shifts a
greater portion of its assets into common stocks, the volatility of
the Company's net asset value may also increase. Further, because the
time horizon for the Company's investments in common stock is longer,
the time necessary for the Company to achieve its objective of total
return will likely be longer than for a fund that invests solely for
income.
The Company presently has invested a significant percentage of
its portfolio in low-dividend or non-dividend paying common stocks
such as Berkshire Hathaway, Inc. Accordingly, once the Company's
recently approved investment objective (i.e., total return) is fully
implemented, the Company will not generate income at its historic
levels thus resulting in a decreased distribution of investment income
to the holders of the Company's common stock. As of March 31, 2000,
the Company held 750 Berkshire Hathaway, Inc. "A" shares and 9010 "B"
shares. At the time of investment, this represented less than 25% of
the Company's assets. However, because of appreciation, as of
________, 2000 these positions represented 29% of the Company's
assets. The Adviser does not intend to liquidate any portion of its
position in Berkshire Hathaway, Inc. Though not an insurance company
itself, Berkshire Hathaway owns Geico Insurance and General Re
Insurance companies, and therefore derives a significant portion of
its income, and its value, from these two insurance companies. The
insurance company 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
Hathaway, Inc. or other company in which the Company has made a
significant common stock investment (i) may result in the Company's
exceeding the coverage ratio thresholds imposed on the Company by the
1940 Act or by Moody's and S&P, (ii) may result in a proportionate
decline in the market price of the Company's common shares and (iii)
greater risk and market fluctuation than a fund that has securities
representing a broader range of investment alternatives.
Investments in Real Estate Investment Trusts ("REITs")
REITs, or Real Estate Investment Trusts, are securities of
companies whose primary objective is investment in real property. The
Company may invest up to 25% of its assets in REIT securities. The
Company intends to invest in REIT securities primarily for income. As
of April 28, 2000, the Company had 6.1% of its assets invested in
REITs.
There are risks associated with investing in REITs, including the
potential for loss of value if the underlying properties in which the
REIT invests decline in value. Property valuations may rise and fall
with either the local economy conditions or with the national economy.
Furthermore, the dividend income paid out by the REIT may be reduced
or eliminated.
Investments in Other Registered Investment Companies ("RICs")
The Company may invest up to 10% of its assets in other
investment companies registered under the 1940 Act. The Company
intends to invest in other closed-end RICs having an income objective
when they are trading at a discount, and when market conditions seem
appropriate to the Adviser. As of April 28, 2000, the Company had
3.3% of its assets invested in RICs.
The Company intends to normally invest in RICs that pay
dividends. There are risks associated with investments in RICs,
including the risk that the dividend paid by the RIC could be reduced
or eliminated.
Investments in Preferred Stocks and Bonds
Preferred stocks and bonds currently constitute approximately 29%
of the Company's assets. This is down significantly from August 27,
1999 (the date shareholders approved the change in objective from
income to total return), when the Company held almost 100% of its
assets in preferred stocks. Preferred stock, along with common stock,
is one of the two major types of equity securities. Generally,
preferred stock receives dividends prior to distributions on common
stock and usually has a priority claim over common stockholders if the
issuer of the stock is liquidated. Since 1993, a hybrid preferred
security was introduced to the market which had both equity and debt
characteristics. Such hybrid preferred securities pay dividends that
are not eligible for the corporate Dividends Received Deduction
("DRD"). The Company had approximately 15% of its assets invested in
such hybrid preferred securities as of ________, 2000. Preferred
stocks and corporate bonds may be substantially less liquid than many
other securities such as common stocks or U.S. Government securities.
In addition, preferred stocks and bonds purchased by the Company may
be subject to risk with respect to the issuing entity and to market
fluctuations. In particular, such preferred stocks and bonds may be
subject to "credit risk" which refers to an issuer's ability to make
timely payments of interest and principal. The Company does not expect
to make substantial investments in securities rated less than
investment grade. Lower-quality fixed-income securities in the
Company's portfolio may be subject to greater risk than higher rated
securities. The Company limits to 15% of its assets the portion of
its portfolio invested in preferred stocks and bonds rated below
investment grade, which securities will be rated at least either "ba"
by Moody's or "BB" by S&P at the time of purchase and will have been
issued by an issuer having a class of outstanding senior debt that is
rated at least investment grade by Moody's or S&P.
Auction Risk
The dividend rate for the AMPS normally is set through an auction
process. In the auction, holders of AMPS indicate the dividend rate at
which they would be willing to hold or sell their AMPS or purchase
additional AMPS and potential investors indicate the rate at which
they would be willing to purchase AMPS. The auction also provides
liquidity for the sale of AMPS. An auction fails if there are more
AMPS offered for sale than there are buyers. You may not be able to
sell your AMPS at an auction if the auction fails. Also, if you place
hold orders (orders to retain AMPS) at an auction only at a specified
dividend rate, and that rate exceeds the rate set at the auction, you
will be obligated to sell your AMPS to investors who bid a lower rate.
Finally, if you and enough other investors place bid or hold orders
without specifying a dividend rate below which you and such other
investors would not wish to buy or continue to hold those AMPS, you
would receive a lower dividend rate on your shares for the next
dividend period than the market rate. See "The Auction".
Secondary Market Risk
If you try to sell your AMPS between auctions, you may not be
able to sell any or all of your shares, or you may not be able to sell
them for $100,000 per share plus accumulated dividends. If the Company
has designated a special dividend period of more than 28 days, changes
in interest rates could affect the price you would receive if you sold
your shares in the secondary market more than if the Company were
utilizing the normal dividend periods. Broker-dealers that maintain a
secondary trading market for AMPS are not required to maintain this
market, and the Company is not required to redeem shares either if an
auction or an attempted secondary market sale fails because of a lack
of buyers. AMPS are not listed on a stock exchange or the NASDAQ stock
market. If you sell your AMPS to a broker-dealer between auctions, you
may receive less than the price you paid for them, especially if
market interest rates have risen since the last auction.
Ratings and Asset Coverage Risk
While it is a condition to the issuance of the AMPS that Moody's
assign a rating of "aa1" and S&P a rating of "AA" to the AMPS, such
ratings do not eliminate or necessarily mitigate the risks of
investing in AMPS. Moody's or S&P could downgrade the AMPS, which may
make your shares less liquid at an auction or in the secondary market.
If Moody's or S&P downgrades the AMPS, the Company may alter its
portfolio or redeem AMPS in an effort to improve the rating, although
there is no assurance that it will be able to do so to the extent
necessary to restore the prior rating. The Company may voluntarily
redeem the AMPS without your consent. See "Rating Agency Guidelines
and Asset Coverage" for a description of the asset maintenance tests
the Company must meet.
MANAGEMENT OF THE COMPANY
Directors and Officers
The Company's board of directors (the "Board") is responsible for
the overall management of the Company, including supervision of the
duties performed by the Adviser and Sub-Advisers. There are five
directors of the Company. Two of the directors are "interested
persons" (as defined in the 1940 Act). The names and business
addresses of the directors and officers of the Company and their
principal occupations and other affiliations during the past five
years are set forth under "Management of the Company" in the statement
of additional information.
Investment Adviser
The Company engages the investment advisory services of the
following registered investment advisers:
* Boulder Investment Advisers, L.L.C. (referred to herein as the
"Adviser") is the primary investment adviser to the Company
and in conjunction with Stewart Investment Advisers ("SIA") is
responsible for the Company's overall investment strategy and
capital allocation. The Adviser was formed on April 8, 1999
as a Colorado limited liability company; its principal place
of business is 1680 38th Street, Boulder, Colorado 80301. The
Adviser, which is registered as an investment adviser under
the Investment Advisers Act of 1940, had not prior to August,
1999 previously served as adviser to a registered investment
company or managed assets on a discretionary or non-
discretionary basis. The Adviser delegates substantial
responsibilities under a sub-advisory agreement to SIA. The
equity owners of the Adviser are Evergreen Atlantic, L.L.C.
("EALLC"), and the Lola Brown Trust No.1B (the "Lola Brown
Trust"), each an "affiliated person" with respect to the
Company (as that term is defined in the 1940 Act). Carl D.
Johns, the Company's Vice President and Treasurer, is the
investment manager for the Adviser, responsible for day-to-day
advisory activities. 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. He worked at Flaherty & Crumrine
Incorporated, the former adviser for the Company, 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 Company. The executive
officers of the Adviser and the principal occupation of each
are set forth below:
Name and Position with the Adviser Principal Occupation
Stephen C. Miller, President, President, Chief Executive
General Counsel and Chief Officer and Chairman of the
Executive Officer Board of the Company; Vice
President and Secretary of
SIA; Director, Vice President
and Assistant Secretary of
Badlands Trust Company; of
Counsel Krassa, Madsen &
Miller, LLC since 1991; and
Manager of Boulder
Administrative Services,
L.L.C. ("BAS")
Carl D. Johns - Investment Chief Financial Officer, Chief
Manager, Vice President and Accounting Officer, Vice
Treasurer President and Treasurer of the
Company; Assistant Manager of
BAS
Laura Rhodenbaugh - Secretary Secretary of BAS; Treasurer of
SIA; Secretary and Treasurer
of various Horejsi family
entities
* Spectrum Asset Management (referred to herein as "Spectrum")
acts as a sub-adviser to the Company and manages the Company's
preferred stock portfolio and, to the extent it is used in the
future, the hedge on such portfolio. Founded in 1987, Spectrum
is a Connecticut corporation registered as an investment
adviser under the Investment Advisers Act of 1940. It is also
registered as a broker-dealer with the SEC and is a member
firm of the National Association of Securities Dealers, Inc.,
as well as a commodity trading adviser registered with the
Commodity Futures Trading Commission and the National Futures
Association. Spectrum is a wholly-owned subsidiary of United
Asset Management Corp., a Delaware corporation headquartered
in Boston, Massachusetts. Spectrum, which specializes in
managing diversified hedged investment-grade preferred stock
portfolios, has its principal offices at 4 High Ridge Park,
Stamford, Connecticut 06905. As of May 31, 1999, Spectrum
managed approximately $2 billion in assets, mainly for banks,
pension and profit-sharing plans, corporations and other
institutions. Spectrum is the investment adviser to the SAMI
Preferred Stock Fund, a registered investment company that, as
of May 31, 1999, had assets of approximately $20 million. The
executive officers and directors of Spectrum and the principal
occupations of each are set forth below:
Name and Position with Spectrum Principal Occupation
Mark A. Lieb - President and Principal of Spectrum
Director
Bernard M. Sussman - Principal Principal of Spectrum;
Limited Partner of Goldman
Sachs & Co.
* Stewart West Indies Trading Company, Ltd., doing business as
Stewart Investment Advisers (referred to herein as "SIA")
also acts as a sub-adviser to the Company and manages the
Company's common stock portfolio and advises the Adviser with
regard to asset allocation. Stewart R. Horejsi, an employee
of SIA and its primary investment manager, is responsible for
the day-to-day strategic management of the Company's assets.
Mr. Horejsi consults with the Adviser regarding specific
common stock recommendations and the Company's asset
allocation among cash, common stocks and fixed income
investments. Mr. Horejsi has been a Director of the Company
since July 1997; General Manager, Brown Welding Supply, LLC,
since April 1994; Director, Sunflower Bank; and the President
or Manager of various subsidiaries associated with the Horejsi
family since June, 1986. Mr. Horejsi has been the investment
adviser for the Horejsi family trusts (i.e., the Lola Brown
Trust, the Ernest Horejsi Trust No.1B, the Stewart R. Horejsi
Trust No. 2 and certain other related trusts) since 1982. As
of June 14, 1999, the size of these trusts' common stock
portfolio was approximately $______ million. Mr. Horejsi has
been the Director and President of the Horejsi Family
Charitable Foundation, Inc. since 1997. Mr. Horejsi 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. The principal place of
business for SIA is Bellerive House, Queen Street, St. Peter,
Barbados. SIA, a Barbados international business company
incorporated on November 12, 1996, is wholly owned by the
Stewart West Indies Trust, a South Dakota trust established by
Stewart R. Horejsi in 1996 primarily to benefit his issue.
SIA, which is registered as an investment adviser under the
Investment Advisers Act of 1940, prior to August 1999, had not
served as adviser to a registered investment company or
managed assets on a discretionary or non-discretionary basis
except for Horejsi family interests. However, as described
above, Stewart R. Horejsi, a principal of SIA, has extensive
experience managing common stocks for his family interests.
SIA is not a U.S. company and substantially all of its
assets are located outside the United States. As a result, it
may be difficult for investors to realize judgments of courts
of the United States predicated upon civil liabilities under
federal securities laws of the United States. The Company 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. Nonetheless, pursuant to the sub-advisory
agreement between SIA, the Adviser and the Company, SIA has
agreed to have an agent for service of process in any legal
action in the United States and to be subject to the
jurisdiction of the U. S. courts. The executive officers and
directors of SIA and the principal occupation of each are set
forth below:
Name and Position with SIA Principal Occupation
Glade Christensen - President Sales Manager for SIA
and Resident General Sales
Manager
Stephen C. Miller, Vice President, Chief Executive
President and Secretary Officer and Chairman of the
Board of the Company; vice
president and Secretary of
SIA; Director, Vice President
and Assistant Secretary of
Badlands Trust Company; of
Counsel Krassa, Madsen &
Miller, LLC since 1991; and
Manager of BAS
Laura Rhodenbaugh - Treasurer Secretary of BAS; Treasurer of
SIA; Secretary and Treasurer
of various Horejsi family
entities
Stewart R. Horejsi - Investment manager for SIA and
Investment Manager investment and business
consultant for the Horejsi
Affiliates
Beneficial Ownership and Control Persons
The following table sets forth certain information regarding the
beneficial ownership of the Company's shares as of May ___, 2000, by
each person who is known by the Company to beneficially own 5% or more
of the Company's common stock. To the Company's knowledge, there are
no 5% or greater beneficial owners of MMP Shares.
Name of Owner Number of Shares Beneficially Owned
EALLC 257,811
John S. Horejsi Trust 65,747
Susan L. Ciciora Trust 131,475
Stewart West Indies Trust 191,907
Lola Brown Trust 1,028,001
Ernest Horejsi Trust 2,468,053
Badlands Trust Company 3,945,550
Stewart R. Horejsi Trust No. 2 3,945,550
Aggregate Shares Owned 3,945,550
* The address of each listed owner is 122 South Phillips Avenue,
Suite 220, Sioux Falls, South Dakota 57104.
** Aggregate number and percentage are less than the sum total of
amounts shown for each owner because the same shares may be
deemed beneficially owned by more than one party (see Footnotes 1
through 4).
(1) DIRECT OWNERSHIP. Evergreen Atlantic, L.L.C. ("EALLC"), John S.
Horejsi Trust ("John Trust"), Susan L. Ciciora Trust ("Susan
Trust"), Stewart West Indies Trust ("SWIT"), Lola Brown Trust
("Lola Brown Trust"), the Ernest Horejsi Trust No. 1B ("Ernest
Trust") and Badlands Trust Company ("Badlands") directly own
257,811; 27,075; 54,132; 78,470; 1,028,001; 2,468,053; and
12,735, respectively, of the Company's common stock shares,
totaling 3,945,550 shares or 41.9% of the outstanding shares of
the Company.
(2) INDIRECT OWNERSHIP THROUGH EVERGREEN. Numbers shown in the table
include shares held directly (see Footnote No. 1) and shares that
may be deemed to be beneficially owned indirectly through
ownership of EALLC. The outstanding equity membership of EALLC is
owned by SWIT, the John Trust, the Susan Trust and the Evergreen
Trust in the following percentages - 44%, 15%, 30% and 11%. The
sole trustee of SWIT, the John Trust and the Susan Trust is
Badlands. Mr. Horejsi is not a beneficiary under any of these
trusts. The trustees of Evergreen Trust are Badlands, Stephen C.
Miller and Larry Dunlap. Any action by the Evergreen Trust
requires a majority vote of the trustees.
(3) OWNERSHIP BY BADLANDS. Numbers shown in the table includes
shares held directly by Badlands (see Footnote No. 1) and shares that
may be deemed to be beneficially owned indirectly by Badlands
through direct or indirect ownership by the Lola Brown Trust, the
Ernest Trust, SWIT, the John Trust, the Susan Trust and the
Evergreen Trust. Badlands is the sole trustee of three of the
four trusts that control EALLC (see Footnote No. 2) and, together
with Larry Dunlap and Susan Ciciora, one of three trustees of the
Lola Brown Trust and the Ernest Trust. Badlands is a trust
company organized under the laws of South Dakota, which is wholly
owned by the SRH Trust, an irrevocable trust organized by Mr.
Stewart Horejsi for the benefit of his children. The directors of
Badlands are Larry Dunlap, Stephen C. Miller, Robert Ciciora, who
is the brother of Mr. Horejsi's son-in-law (John Ciciora), Ann M.
Hartmann and Carol Jorgensen.
(4) INDIRECT OWNERSHIP BY SRH TRUST. Numbers shown in the table
reflects shares that may be deemed to be beneficially owned
indirectly through ownership of Badlands. The trustees of the SRH
Trust are Badlands, Robert Ciciora and Robert Kastner.
EALLC, the John Trust, the Susan Trust, SWIT, the Lola Brown Trust,
the Ernest Trust, Badlands, the Stewart R. Horejsi Trust No. 2 ("SRH
Trust") and Stewart R. Horejsi are, as a group, considered to be a
"control person" of the Company (as that term is defined in Section
2(a)(9) of the Investment Company Act of 1940, as amended (the "1940
Act")). These entities and other trusts or companies with
interlocking management and/or common ownership (collectively, the
"Horejsi Affiliates") may be deemed to indirectly own additional
Company shares, which are included in the table above. Further,
Stewart R. Horejsi, the investment manager for SIA, is also the
primary investment consultant for the Horejsi Affiliates and, on a
discretionary basis, implements and directs their investment objective
and asset allocation.
Investment Philosophy
Common Stocks. With respect to the common stock portfolio, the
Adviser and SIA use an "intrinsic value" approach to selecting and
managing the Company's assets. The Adviser and SIA define intrinsic
value as the discounted value of the cash that can be taken out of a
business during its remaining life. Accordingly, in its securities
selection process, the Adviser and SIA put primary emphasis on
analysis of balance sheets, cash flows, the quality of management and
their 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 Adviser and SIA's
estimate of such companies' "intrinsic value". The Adviser and SIA
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 Company.
Cash and Cash Equivalents. As of _______________, 2000, the
Company currently had a significant cash position as well as a
significant investment in U.S. Treasury securities. The cash position
is higher than it would normally be due to the transition from being
an income fund to a total return fund. It is expected that a
significant portion of this cash will be used for common stock
investments. Once the Company has fully implemented its total return
objective, under normal market conditions, the Company's cash position
will typically be less than 10% of the Company total assets.
Preferred Stocks. In seeking its total return objective, the
Company will, under normal market conditions, invest a portion of its
assets in a diversified portfolio of preferred stocks. In selecting
individual preferred stocks, Spectrum will consider, among other
things, current yield, price variability and the underlying
fundamental characteristics of the issuer, with particular emphasis on
debt and dividend coverage and the potential for the timely payment of
dividends. Spectrum expects to invest primarily in fixed rate
preferred stocks. The Company may invest in other types of preferred
stocks - such as auction rate preferred stocks and convertible
preferred stocks - in appropriate circumstances.
The Investment Advisory Agreement
The Adviser and the Company are parties to an investment advisory
agreement dated as of August 27, 1999 (the "Adviser Agreement"). The
Sub-Advisers, the Adviser and the Company are parties to sub-advisory
agreements dated August 27, 1999 (the "Sub-Adviser Agreements").
Under the terms of the Adviser Agreement, the Adviser manages the
investment of the Company's assets and provides such investment
research, advice and supervision, in conformity with the Company's
investment objective and policies, as necessary for the operations of
the Company. Under the terms of the Sub-Adviser Agreements, the
Adviser has engaged, on behalf of the Company, the investment sub-
advisory services of Spectrum and SIA. Under the Spectrum Sub-Adviser
Agreement, under the general direction of the Adviser, Spectrum
manages the preferred stock investments of the Company and provides
such investment research, advice and supervision, in conformity with
the Company's investment objective and policies, as necessary for the
selection and monitoring of the preferred stock portfolio. Spectrum
also provides the investment research, advice and supervision with
respect to the Company's hedge on its preferred stock portfolio. Under
the SIA Sub-Adviser Agreement, under the general direction of the
Adviser, SIA provides the Adviser advisory services with regard to the
common stock investments of the Company and provides such investment
research, advice and supervision, in conformity with the Company's
investment objective and policies, as necessary for the selection and
monitoring of the common stock portfolio. SIA also provides advisory
services regarding the Company's capital allocation. The Adviser
Agreement and the Sub-Adviser Agreements are referred to herein as the
"Advisory Agreements".
The Advisory Agreements provide, among other things, that the
Adviser and Sub-Advisers will bear all expenses in connection with the
performance of their services under the Advisory Agreements, although
the Company 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 Company who are not also officers, directors or
employees of the Adviser or a Sub-Adviser; Securities and Exchange
Commission fees; state Blue Sky qualification fees; charges of any
custodian, any sub-custodians and transfer and dividend-paying agents;
insurance premiums; outside auditing and legal expenses; costs of
maintenance of the Company's existence; membership fees in trade
associations; stock exchange listing fees and expenses; and litigation
and other extraordinary or non-recurring expenses.
The Adviser Agreement provides that the Company shall pay to the
Adviser for its services a monthly fee at the annual rate of 1.00% of
the Company's average monthly net asset value (the "Adviser Fee").
Under the terms of the Spectrum Sub-Adviser Agreement, out of the
Adviser Fee, the Adviser is required to pay to Spectrum with respect
to the preferred stock portfolio managed by Spectrum (the "Spectrum
Portfolio") (i) 0.45% of the Company's average monthly net asset value
with respect to the Spectrum Portfolio up to $50 million; and
(ii) 0.40% of the Company's average monthly net asset value with
respect to the Spectrum Portfolio exceeding $50 million (the "Spectrum
Fee"). Under the terms of the SIA Sub-Adviser Agreement, the Adviser
is required to pay SIA 80% of all fees received by the Adviser
pursuant to the Adviser Agreement net of the Spectrum Fee. The
liquidation value of any outstanding preferred stock is included in
determining the Company's average weekly net asset value.
Although the Adviser and Sub-Advisers intend to devote such time
and effort to the business of the Company as is reasonably necessary
to perform their respective duties to the Company, the services of the
Adviser and Sub-Advisers are not exclusive and the Adviser and Sub-
Advisers provide similar services to other investment companies and
other clients and may engage in other activities.
The Advisory Agreements provide that the Adviser and Sub-Advisers
shall not be liable for any error of judgment or mistake of law or
omission or any loss suffered by the Company in connection with the
matters to which the agreements relate, although the agreements do not
protect or purport to protect the Adviser or Sub-Advisers against any
liability to the Company to which the Adviser or Sub-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 Company of the Adviser or Sub-Adviser, as the
case may be, and its partners, members, officers, employees, agents
and control persons for liabilities incurred by them in connection
with their services to the Company, 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 Company (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 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 Company, 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 Company or by the Adviser or Sub-Adviser, 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, all 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).
The Administration and Co-Administration Agreements
The Administration Agreement. [Summary of PFPC Administration
Agreement] PFPC, Inc. (the "Administrator"), located at
________________, acts as administrator for the Company. Under the
Administration Agreement with the Company (the "Administration
Agreement"), the Administrator administers the Company's corporate
affairs subject to the supervision of the Board
________________________.
In connection with its administration of the corporate affairs of
the Company, the Administrator bears the following expenses: (i) the
salaries and expenses of all personnel of the Administrator; and (ii)
all expenses incurred by the Administrator in connection with
administering the ordinary course of the Company's business, other
than those assumed by the Company, as described below.
The Administration Agreement provides that the Company shall pay
to the Administrator a monthly fee for its services furnished by the
Administrator at the annual rate of [0.10%] of the Company's average
monthly net asset value. The liquidation value of any outstanding
AMPS is included in determining the Company's average weekly net asset
value. The Administration Agreement is terminable on [60 days'] prior
written notice by either party to the other.
The Co-Administration Agreement. Boulder Administrative
Services, L.L.C. (the "Co-Administrator"), located at 1680 38th Street,
Suite 800, acts as co-administrator for the Company. Under the Co-
Administration Agreement with the Company (the "Co-Administration
Agreement"), the Co-Administrator provides specific administration and
executive management services to the Company including, but not
limited to: officers and staffing and general office services and
equipment (e.g., phones, copy machines, computers, fax, etc.) for the
Company; provides the Company's general offices and associated
facilities; negotiates and monitors all contracts with service
providers; negotiates and monitors all insurance policies of the
Company as well as the rating agency agreements with Moody's and S&P;
provides shareholder relations and shareholder support; conducts
weekly backup calculation of the Company's NAV; prepares all
shareholder communications and oversees the preparation of the
Company's periodic reports to the SEC; reviews and authorizes all
expenses of the Company; makes recommendations to the Board regarding
policies of the Company; and provides in house counsel and compliance
personnel to the Company. Under the terms of the Co-Administration
Agreement, the Company pays BAS a monthly fee, calculated at an annual
rate of 0.10% of the value of the Company's average monthly net
assets.
In connection with its co-administration of the corporate affairs
of the Company, the Co-Administrator bears the following expenses: (i)
the salaries and expenses of all personnel of the Co-Administrator;
and (ii) all expenses incurred by the Co-Administrator in connection
with administering the ordinary course of the Company's business,
other than those assumed by the Company, as described below.
The Co-Administration Agreement provides that the Company shall
pay to the Co-Administrator a monthly fee for its services furnished
by the Co-Administrator at the annual rate of [0.10%] of the Company's
average monthly net asset value. The liquidation value of any
outstanding AMPS is included in determining the Company's average
weekly net asset value. The Co-Administration Agreement is terminable
on [60 days'] prior written notice by either party to the other.
Expenses of The Company
Except as indicated above, the Company will pay all of its
expenses, including fees of the directors not affiliated with the
Adviser or any Sub-Adviser and board meeting expenses: fees of the
Adviser, Sub-Advisers, Administrator and Co-Administrator; interest
charges; taxes; organization expenses; charges and expenses of the
Company's legal counsel and independent accountants, and of the
transfer agent, registrar and dividend disbursing agent of the
Company; expenses of repurchasing shares; expenses of issuing any
preferred shares (including the AMPS) or indebtedness; expenses of
printing and mailing share certificates, stockholder reports, notices,
proxy statements and reports to governmental offices; brokerage and
other expenses connected with the execution, recording and settlement
of portfolio security transactions; expenses connected with
negotiating, effecting purchase or sale, or registering privately
issued portfolio securities; custodial fees and expenses for all
services to the Company, including safekeeping of funds and securities
and maintaining required books and accounts; expenses of calculating
and publishing the net asset value of the Company's shares; expenses
of membership in investment company associations; expenses of fidelity
bonding and other insurance expenses including insurance premiums;
expenses of stockholders meetings; SEC and state registration fees;
New York Stock Exchange listing fees; and fees payable to the National
Association of Securities Dealers, Inc. in connection with this
Offering and fees of any rating agencies retained to rate any
preferred shares (including the AMPS) issued by the Company.
DESCRIPTION OF AMPS
The following is a brief description of the terms of the AMPS.
For the complete terms of the AMPS, including definitions of terms
used but not defined, please refer to the detailed description of the
AMPS in the Amended and Restated Articles Supplementary attached as
Appendix B to the statement of additional information. We refer to
the Articles of Incorporation in this prospectus as the "Articles" and
the Amended and Restated Articles Supplementary as the "Articles
Supplementary."
General
The Articles currently authorize the issuance of 240 million
shares of common stock and 10 million shares of preferred stock, par
value $.01 per share (which may be issued from time to time in such
series and with such designations, preferences, and other rights,
qualifications, limitations and restrictions as are determined in a
resolution of the Board). As of March ___, 2000, there were issued
and outstanding [9,416,743] shares of common stock and [775] MMP
Shares. Under the Articles Supplementary, the Company will be
authorized to issue up to 2,000 of the AMPS with a liquidation
preference of $100,000 per share plus an amount equal to dividends on
each share (whether or not earned or declared) accumulated and unpaid
thereon. Each AMP 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.
As of the date of this prospectus, there are [775] MMP Shares
issued and outstanding but there are no AMPS issued or outstanding.
It is expected and is a condition precedent to issuance of the AMPS
that the MMP Shares will be redeemed in conjunction with the issuance
of the AMPS and that the entirety of the proceeds from the sale of the
AMPS will be used, together with other assets of the Company, to fund
such redemption.
The AMPS are shares of preferred stock of the Company. AMPS
entitle their holders to receive dividends when, as and if declared by
the Board, out of funds legally available therefor. The rate per
annum on which dividends are paid may vary from dividend period to
dividend period for the AMPS. In general, the applicable rate for a
particular dividend period for the AMPS will be determined by an
auction conducted on the day before the start of the dividend period.
Existing holders and potential holders of AMPS may participate in the
auctions. Existing holders desiring to continue to hold all of their
AMPS regardless of the applicable rate resulting from the auction need
not participate. For an explanation of auctions and the method of
determining the applicable rate, see "The Auction".
After the fixed initial dividend period, the AMPS will generally
have a dividend period of 28 days in length although the AMPS may have
a different dividend period if the Company declares a special dividend
period and certain conditions are satisfied.
The AMPS have a liquidation preference of $100,000 per share plus
an amount equal to accumulated but unpaid dividends. The AMPS are
fully paid and non-assessable. The AMPS are not convertible into
common shares or other capital stock of the Company. Holders of AMPS
have no preemptive rights. The AMPS are not subject to any sinking
fund. The AMPS are generally subject to redemption at the option of
the Company on any dividend payment date for the respective series
[(provided that no AMPS shall be subject to optional redemption during
a Non-Call Period)] and, in certain circumstances, are subject to
mandatory redemption by the Company. In connection with the auction
procedures described below, [Deutsche Bank Group] is the auction
agent, the transfer agent, registrar, dividend disbursing agent and
redemption agent for the AMPS.
Dividends and Dividend Periods
General. The following is a general description of dividends and
dividend periods for the AMPS. The initial dividend period for the
AMPS will be ___ days and the dividend rate for this period will be
__%. Subsequent dividend periods generally will be twenty-eight days
and the dividend rates for those periods will be determined by
auction. The Company, subject to certain conditions, may change the
length of subsequent dividend periods by designating them as special
dividend periods. See "Designation of Special Dividend Periods" below.
Dividend Payment Dates. Dividends on AMPS will be payable, when,
as and if declared by the Board, out of legally available funds in
accordance with the Company's charter and applicable law. The initial
dividend will be paid on _____________, 2000 (the "Initial Dividend
Payment Date"). Subsequent dividends generally will be paid on each
fourth [Wednesday] after the Initial Dividend Payment Date. If
dividends are payable on a [Wednesday] that is not a business day,
then dividends will generally be payable on the next day, if such day
is a business day, or as otherwise specified in the Articles
Supplementary. In the case of a special dividend period of 21 days
or fewer, dividends are generally payable on the day following the
last day of such dividend period. In the case of a special dividend
period of more than 35 but less than 92 days, dividends generally are
payable on the day following the last day of each 30 day period to
occur during the dividend period and on the day following the last day
of the dividend period. In the case of a special dividend period of
92 days or more, dividends will be payable as the Company may specify
in the notice of special dividend period issued for such special
dividend period.
Dividends will be paid through The Depository Company Trust
("DTC") on each dividend payment date. DTC, in accordance with its
current procedures, is expected to distribute dividends received from
the auction agent in same-day funds on each dividend payment date to
Agent Members (members of DTC that will act on behalf of existing or
potential holders of AMPS). These Agent Members are in turn expected
to distribute such dividends to the persons for whom they are acting
as agents. However, each of the current Broker-Dealers has indicated
to the Company that dividend payments will be available in same-day
funds on each dividend payment date to customers that use a
Broker-Dealer or a Broker-Dealer's designee as Agent Member.
Calculation of Dividend Payment. The Company computes the
dividend per AMP Share by multiplying the applicable rate in effect by
a fraction. The numerator of this fraction will normally be twenty-
eight (i.e., the number of days in the dividend period) and the
denominator will normally be 365. If the Company has designated a
special dividend period of 365 days or more, then the numerator will
be the number of days in the dividend period, and the denominator will
be 360. In either case, this rate is then multiplied by $100,000 to
arrive at the dividends per share. In addition, if dividends are
scheduled to be paid more than once during a dividend period, the
total dividend per share will be allocated among such payments on a
daily basis.
Dividends on AMPS will accumulate from the date of their original
issue. For each dividend payment period after the initial dividend
period, the dividend rate will be the dividend rate determined at
auction, except as provided below. The dividend rate that results from
an auction will not be greater than the maximum applicable rate
described below. In the case of a special dividend period for which
bid requirements are specified, the dividend rate will not be less
than the minimum applicable rate specified in the notice declaring the
special dividend period. During dividend periods for which no bid
requirements are specified, there will be no minimum applicable rate.
Bid requirements may also include, with respect to any special
dividend period of longer than 91 days, the requirement that bids be
expressed as a spread over a specified reference index or reference
security and the frequency of dividend payments during such special
dividend period.
The maximum applicable rate for any regular dividend payment
period will be the applicable percentage (set forth in the table
below) of the 30-day "AA" Composite Commercial Paper Rate. In the
case of a special dividend period, the maximum applicable rate will be
the applicable percentage of the Special Dividend Period Reference
Rate (which will ordinarily be specified by the Company in the notice
of the special dividend period) for such dividend payment period. The
applicable percentage is determined on the day that a notice of a
special dividend period is delivered if the notice specifies a maximum
applicable rate for a special dividend period. The applicable
percentage will be determined based on the lower of the credit rating
or ratings assigned to the AMPS by Moody's and S&P. If Moody's or S&P
or both shall not make such rating available, the rate shall be
determined by reference to equivalent ratings issued by a substitute
rating agency.
Credit Ratings Applicable
Percentage:
Moody's S&P No Notification
"aa3" or higher AA- or higher 110%
"a3" to "al" A- to A+ 125%
"baa3" to "baal" BBB- to BBB+ 150%
"ba3" to "bal" BB- to BB+ 200%
Below "ba3" Below BB- 250%
Prior to each dividend payment date, the Company is required to
deposit with the auction agent sufficient funds for the payment of
declared dividends. The failure to make such deposit will not result
in the cancellation of any auction. The Company does not intend to
establish any reserves for the payment of dividends.
Restrictions on Dividends and Other Distributions. While the
AMPS are outstanding, the Company generally may not declare, pay or
set apart for payment, any dividend or other distribution in respect
of its common shares (other than in additional shares of common stock
or rights to purchase common stock) or repurchase any of its common
shares unless each of the following conditions have been satisfied:
* In the case of the Moody's coverage requirements, immediately after
such transaction, the aggregate Moody's Coverage Value (i.e., the
aggregate value of the Company's portfolio discounted according to
Moody's criteria) would be equal to or greater than the Eligible
Asset Coverage Amount (i.e., the amount necessary to pay all
outstanding obligations of the Company with respect to the AMPS,
any other preferred stock outstanding, expenses for the next 90
days and any other liabilities of the Company) (see "Rating Agency
Guidelines and Asset Coverage" below);
* In the case of S&P's coverage requirements, immediately after such
transaction, the Aggregate S&P Value (i.e., the aggregate value of
the Company's portfolio discounted according to S&P criteria) would
be equal to or greater than the Eligible Asset Coverage Amount;
* Immediately after such transaction, the 1940 Act Asset Coverage is
met;
* Full cumulative dividends on the AMPS due on or prior to the date
of the transaction have been declared and paid or shall have been
declared and sufficient funds for the payment thereof deposited
with the auction agent; and
* The Company has redeemed the full number of AMPS required to be
redeemed by any provision for mandatory redemption contained in
the Articles Supplementary.
The Company generally will not declare, pay or set apart for
payment any dividend on any shares of the Company ranking, as to the
payment of dividends, on a parity with AMPS unless the Company has
declared and paid or contemporaneously declares and pays full
cumulative dividends on the AMPS through its most recent dividend
payment date. However, when the Company has not paid dividends in full
on the AMPS through the most recent dividend payment date or upon any
shares of the Company ranking, as to the payment of dividends, on a
parity with AMPS through their most recent respective dividend payment
dates, the amount of dividends declared per share on AMPS and such
other class or series of shares will in all cases bear to each other
the same ratio that accumulated dividends per share on the AMPS and
such other class or series of shares bear to each other.
Designation of Special Dividend Periods. The Company may, at its
sole option, declare a special dividend period. To declare a special
dividend period, the Company will give notice (a "request for special
dividend period") to the auction agent and to each Broker-Dealer. The
notice will request that the next succeeding dividend period for the
AMPS be a number of days (other than twenty-eight) evenly divisible by
seven as specified in such notice. The Company may not request a
special dividend period unless sufficient clearing bids were made in
the most recent auction. In addition, full cumulative dividends, any
amounts due with respect to mandatory redemptions and any additional
dividends payable prior to such date must be paid in full. The
Company also must have received confirmation from Moody's and S&P or
any substitute rating agency that the proposed special dividend period
will not adversely affect such agency's then-current rating on the
AMPS. A request for special dividend period also will specify any
proposed bid requirements. Upon receiving a request for a special
dividend period, the Broker-Dealer(s) will jointly determine whether,
given the factors set forth in the Articles Supplementary, it is
advisable that the Company issue a notice of special dividend period
for the AMPS as contemplated by the request. If no Broker-Dealer
objects to the notice of special dividend period, the Company may
issue such notice specifying the duration of the special dividend
period, the bid requirements, if any, and the specific redemption
provisions, if any.
Redemption
Mandatory Redemption. The Company is required to maintain
(a) An aggregate Coverage Value (i.e., the Moody's coverage
value) of its portfolio equal to the Eligible Asset
Coverage Amount;
(b) An Aggregate S&P Value of its portfolio equal to the
Eligible Asset Coverage Amount; and
(c) The 1940 Act Asset Coverage.
If the Company fails to maintain such asset coverage amounts and does
not timely cure such failure in accordance with the requirements of
the rating agencies that rate the AMPS, the Company must redeem all or
a portion of the AMPS. This mandatory redemption will take place on a
date that the Board specifies out of legally available funds in
accordance with the Company's charter and applicable law, at the
redemption price of $100,000 per share plus accumulated but unpaid
dividends (whether or not earned or declared) to the date fixed for
redemption. The mandatory redemption will be limited to the number of
AMPS necessary to restore the required Coverage Value (i.e., the
Moody's coverage value), Aggregate S&P Value and 1940 Act Asset
Coverage, as the case may be.
Optional Redemption. The Company, at its option, may redeem the
AMPS, in whole or in part, out of funds legally available therefor.
Any optional redemption will occur on a dividend payment date at the
optional redemption price per share of $100,000 per share plus an
amount equal to accumulated but unpaid dividends to the date fixed for
redemption. No AMPS may be redeemed if the redemption would cause
the Company to violate the 1940 Act or Maryland law.
Liquidation
If the Company is liquidated, the holders of outstanding AMPS
will receive $100,000 per share, plus all accumulated but unpaid
dividends (whether or not earned or declared), plus the premium, if
any, resulting from the designation of a premium call period. The
holders of AMPS will be entitled to receive these amounts from the
assets of the Company available for distribution to its shareholders
in preference to the holders of the Company's common shares. After
the payment to the holders of AMPS of the full preferential amounts as
described, the holders of AMPS will have no right or claim to any of
the remaining assets of the Company.
For purposes of the foregoing paragraph, a voluntary or
involuntary liquidation of the Company does not include:
* The sale of all or substantially all the property or
business of the Company;
* The merger or consolidation of the Company into or with
any other corporation; or
* The merger or consolidation of any other corporation
into or with the Company.
Rating Agency Guidelines and Asset Coverage
The Company is required under guidelines of Moody's and S&P to
maintain assets having in the aggregate a Coverage Value (i.e., the
Moody's coverage value) and Aggregate S&P Value at least equal to the
Eligible Asset Coverage Amount. The aggregate Coverage Value and the
Aggregate S&P Value are collectively referred to herein as the
"Aggregate Coverage Values". Moody's and S&P have each established
separate guidelines for calculating their respective Aggregate
Coverage Values. To the extent any particular portfolio holding does
not satisfy a rating agency's guidelines, all or a portion of the
holding's value will not be included in the rating agency's
calculation of its respective Aggregate Coverage Value. The Moody's
and S&P guidelines do not impose any limitations on the percentage of
the Company's assets that may be invested in holdings not eligible for
inclusion in the calculation of the Aggregate Coverage Value. The
amount of ineligible assets included in the Company's portfolio at any
time may vary depending upon the rating, diversification and other
characteristics of the eligible assets included in the portfolio. The
Eligible Asset Coverage Amount includes the sum of (a) the aggregate
liquidation preference of the AMPS then outstanding and (b) certain
accrued and projected payment obligations of the Company.
The Company is also required under the Articles Supplementary to
maintain asset coverage (as defined in the 1940 Act) of at least 200%
with respect to senior securities which are equity shares, including
the AMPS (referred to herein as the "1940 Act Asset Coverage"). The
1940 Act Asset Coverage is tested as of the last business day of each
month in which any senior equity securities are outstanding. The
minimum required 1940 Act Asset Coverage amount of 200% may be
increased or decreased if the 1940 Act is amended. Based on the
composition of the portfolio of the Company and market conditions as
of [May ___, 2000], the 1940 Act Asset Coverage with respect to all of
the AMPS, assuming the issuance on that date of all AMPS offered
hereby and giving effect to the deduction of related sales load and
related offering costs estimated at $[ ], would have been
computed as follows:
Value of Company assets less liabilities
not constituting senior securities = $[000000000] = [00000] %
Senior securities representing indebtedness $[000000000]
plus
liquidation value of the preferred shares
The Company will be required to redeem AMPS as described under
"--Redemption--Mandatory Redemption" if the Company does not timely
cure a failure to maintain:
(a) An aggregate Coverage Value equal to or greater than the
Eligible Asset Coverage Amount (e.g., in the case of the
Moody's coverage requirements);
(b) An Aggregate S&P Value equal to or greater than the
Eligible Asset Coverage Amount (e.g., in the case of S&P's
coverage requirements); and
(c) 1940 Act Asset Coverage.
Pursuant to S&P guidelines, the Company is required under the
Articles Supplementary to have Deposit Securities with maturity or
tender payment dates not later than the next dividend payment date for
the AMPS (collectively, "Dividend Coverage Assets") and having in the
aggregate a value not less than the Projected Dividend Amount (the
"Minimum Liquidity Level"). The "Projected Dividend Amount," as of
any Eligible Asset Evaluation Date, means the amount of cash
dividends, based on the number of AMPS outstanding on such Eligible
Asset Evaluation Date, which (whether or not earned or declared) are
accumulated on such shares up to but not including such Eligible Asset
Evaluation Date and unpaid and which are projected to accumulate on
such shares from such Eligible Asset Evaluation Date until the [35th]
day after such Eligible Asset Evaluation Date, at the rates set forth
in the Articles Supplementary. The term "Deposit Securities" means
cash, short-term money market instruments that mature within 360 days,
and U.S. Government Obligations. The definitions of "Deposit
Securities," "Dividend Coverage Assets" and "Dividend Coverage Amount"
may be changed from time to time by the Company without shareholder
approval, but only in the event the Company receives confirmation from
S&P and Moody's, as the case may be, that any such change would not
impair the ratings then assigned by S&P to AMPS. The Company needs to
comply with the S&P Minimum Liquidity Level only for so long as S&P
rates the AMPS. The Minimum Liquidity Level is tested as of each
Eligible Asset Evaluation Date (ordinarily every Friday).
The Company may, but is not required to, adopt any modifications
to the guidelines that may be established by Moody's or S&P. Failure
to adopt any such modifications, however, may result in a change in
the ratings described above or a withdrawal of ratings altogether. In
addition, any rating agency providing a rating for the AMPS may, at
any time, change or withdraw any such rating. The Board may, without
shareholder approval, amend, alter or repeal any or all of the
definitions and related provisions which have been adopted by the
Company pursuant to the rating agency guidelines in the event the
Company receives written confirmation from Moody's or S&P, as the case
may be, that any such amendment, alteration or repeal would not impair
the rating then assigned to the AMPS.
A rating agency's guidelines will apply to AMPS only so long as
the rating agency is rating the shares. The Company will pay certain
fees to Moody's and S&P for rating the AMPS.
Voting Rights
Except as otherwise provided in this prospectus and in the
statement of additional information or as otherwise required by law,
holders of AMPS will have equal voting rights with holders of common
shares and any other preferred shares of the Company (one vote per
share) and will vote together with holders of common shares and any
other preferred shares as a single class.
Holders of outstanding preferred shares of the Company, including
AMPS, voting as a separate class, are entitled to elect two of the
Company's directors. The remaining directors are elected by holders
of common shares and preferred shares, including AMPS, voting together
as a single class. In addition, if at any time dividends (whether or
not earned or declared) on outstanding preferred shares of the
Company, including 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 shares
of the Company 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 shares as described above, would constitute a majority of
the Board. The holders of preferred shares of the Company will be
entitled to elect that smallest number of additional directors at a
special meeting of shareholders held as soon as possible and at all
subsequent meetings at which directors are to be elected. The terms of
office of the persons who are directors at the time of that election
will continue. If the Company thereafter pays in full all accumulated
and unpaid dividends on all outstanding preferred shares of the
Company, the special voting rights stated above will cease and the
terms of office of the additional directors elected by the holders of
the preferred shares will automatically terminate.
As long as any preferred shares of the Company are outstanding,
the Company will not, without the affirmative vote or consent of the
holders of the AMPS outstanding at the time (voting as a separate
class) as follows:
(a) Without the affirmative vote of at least a majority of the
votes entitled to be cast by holders of the AMPS,
authorize, create or issue any class or series of stock
ranking prior to or on a parity with the AMPS with respect
to the payment of dividends or the distribution of assets
upon dissolution, liquidation or winding up of the affairs
of the Company (other than previously authorized and un-
issued AMPS, including any AMPS purchased or redeemed by
the Company), or increase the authorized amount of AMPS or
any other preferred stock; or unless, in the case of shares
of preferred stock on parity with the AMPS, the Company
obtains written confirmation from Moody's (if Moody's is
then rating preferred shares), S&P (if S&P is then rating
preferred shares) or any substitute rating agency (if any
such substitute rating agency is then rating preferred
shares) that the issuance of a class or series would not
impair the rating then assigned by such rating agency to
the AMPS) and the Company continues to comply with Section
13(a) of the 1940 Act, the 1940 Act Asset Coverage
requirements and the Eligible Asset Coverage Amount
requirements, in which case the vote or consent of the
holders of the AMPS is not required;
(b) Without the affirmative vote of at least a majority of the
votes entitled to be cast by holders of the AMPS, amend,
alter or repeal the provisions of the Articles, including
the Articles Supplementary, whether by merger,
consolidation or otherwise, so as to adversely affect in
any material respect any of the contract rights expressly
set forth in the Articles, including the Articles
Supplementary, of such AMPS or the holders thereof;
(c) Without the affirmative vote of at least a majority of
the votes entitled to be cast by holders of the AMPS,
authorize any plan of reorganization (as such term is used
in the 1940 Act) adversely affecting the Preferred Share or
any action requiring a vote of security holders of the
Company under Section 13(a) of the 1940 Act. With respect
to the Company, Section 13(a) of the 1940 Act primarily
refers to a change in the Company's subclassification from
that of a closed-end investment company to that of an open-
end investment company or from a diversified to a non-
diversified investment company; or
(d) Without the affirmative vote of at least 2/3rds of the
votes entitled to be cast by holders of the AMPS, file a
voluntary application for relief under Federal bankruptcy
law or any similar application under state law.
To the extent permitted under the 1940 Act, the Company will not
approve any of the actions set forth above which adversely affect the
rights expressly set forth in the Company's charter of a holder of
shares of a series of preferred shares differently than those of a
holder of shares of any other series of preferred shares without the
affirmative vote or consent of the holders of at least a majority of
the shares of each series whose rights are adversely affected. Unless
a higher percentage is provided for under the Company's charter, the
affirmative vote of the holders of a majority of the outstanding
preferred shares, including AMPS, voting together as a single class,
will be required to approve any plan of reorganization (including
bankruptcy proceedings) adversely affecting such shares or any action
requiring a vote of security holders under Section 13(a) of the 1940
Act. To the extent permitted by the Maryland General Corporation Law,
no vote of holders of common stock, either separately or together with
holders of preferred shares as a single class, is necessary to take
the actions contemplated by (a) and (b) above. The holders of common
shares will not be entitled to vote in respect of such matters,
unless, in the case of the actions contemplated by (b) above, the
action would adversely affect the contract rights of the holders of
common shares expressly set forth in the Company's charter.
The foregoing voting provisions will not apply with respect to
AMPS if, at or prior to the time when a vote is required, such shares
have been (i) redeemed or (ii) called for redemption and sufficient
funds have been deposited in trust to effect such redemption.
THE AUCTION
General
The Articles Supplementary provide that, except as otherwise
described in this prospectus, the applicable rate for the AMPS for
each dividend period after the initial dividend period will be the
rate that results from an auction conducted as set forth in Articles
Supplementary and summarized below. In such an auction, persons
determine to hold or offer to sell or, based on dividend rates bid by
them, offer to purchase or sell AMPS. See the Articles Supplementary
included in the statement of additional information for a more
complete description of the auction process.
Auction Agency Agreement. The Company will enter into an auction
agency agreement with the auction agent (currently, [Deutsche Bank
Group]) which provides, among other things, that the auction agent
will follow the auction procedures to determine the applicable rate
for AMPS so long as the applicable rate for AMPS is to be based on the
results of an auction.
The auction agent may terminate the auction agency agreement upon
notice to the Company no earlier than 60 days after such notice. If
the auction agent should resign, the Company will use its best efforts
to enter into an agreement with a successor auction agent containing
substantially the same terms and conditions as the auction agency
agreement. The Company may remove the auction agent provided that
prior to such removal the Company has entered into such an agreement
with a successor auction agent.
Broker-Dealer Agreements. Each auction requires the participation
of one or more Broker-Dealers. The auction agent will enter into
agreements with several Broker-Dealers selected by the Company, which
provide for the participation of those Broker-Dealers in auctions for
AMPS.
The auction agent will pay to each Broker-Dealer after each
auction, from funds provided by the Company, a service charge at the
annual rate of [1/4 of 1%] of the stated value ($100,000 per share) of
the AMPS held by a Broker-Dealer's customer upon settlement in an
auction.
The Company may request the auction agent to terminate one or
more Broker-Dealer Agreements at any time upon five days' notice,
provided that at least one Broker-Dealer Agreement is in effect after
such termination.
Auction Procedures
Prior to the submission deadline on each auction date for the
AMPS, each customer of a Broker-Dealer who is listed on the records of
that Broker-Dealer (or, if applicable, the auction agent) as a
beneficial owner of AMPS may submit the following types of orders with
respect to AMPS to that Broker-Dealer:
1. Hold Order--indicating its desire to hold AMPS without
regard to the applicable rate for the next dividend period.
2. Bid--indicating its desire to purchase or hold the
indicated number of AMPS at $100,000 per share if the
applicable rate for shares of such series for the next
dividend period is not less than the rate or spread
specified in the bid and which shall be deemed an
irrevocable offer to sell AMPS at $100,000 per share if the
applicable rate for shares of such series for the next
dividend period is less than the rate or spread specified
in the bid.
3. Sell Order--indicating its desire to sell AMPS at $100,000
per share without regard to the applicable rate for shares
of such series for the next dividend period.
A beneficial owner of AMPS may submit different types of orders
to its Broker-Dealer with respect to AMPS then held by the beneficial
owner. A beneficial owner that submits a bid to its Broker-Dealer
having a rate higher than the maximum applicable rate on the auction
date will be treated as having submitted a sell order to its
Broker-Dealer. A beneficial owner that fails to submit an order to its
Broker-Dealer will ordinarily be deemed to have submitted a hold order
to its Broker-Dealer. However, if a beneficial owner fails to submit
an order for some or all of its shares to its Broker-Dealer for an
auction relating to a dividend period of more than 91 days, such
beneficial owner will be deemed to have submitted a sell order for
such shares to its Broker-Dealer. A sell order constitutes an
irrevocable offer to sell the AMPS subject to the sell order. A
beneficial owner that offers to become the beneficial owner of
additional AMPS is, for purposes of such offer, a potential holder as
discussed below.
A potential holder is either a customer of a Broker-Dealer that
is not a beneficial owner of AMPS but that wishes to purchase AMPS or
a beneficial owner that wishes to purchase additional AMPS. A
potential holder may submit bids to its Broker-Dealer in which it
offers to purchase AMPS at $100,000 per share if the applicable rate
for the next dividend period is not less than the rate specified in
such bid. A bid placed by a potential holder specifying a rate higher
than the maximum applicable rate on the auction date will not be
accepted.
Any bid by an existing holder that specifies a spread with
respect to an auction in which a spread is not included in any bid
requirements or in which there are no bid requirements and an order
that does not specify a spread with respect to an auction in which a
spread is included in any bid requirements will be treated as a sell
order.
The Broker-Dealers in turn will submit the orders of their
respective customers who are beneficial owners and potential holders
to the auction agent. However, neither the Company nor the auction
agent will be responsible for a Broker-Dealer's failure to comply with
these procedures. Any order placed with the auction agent by a
Broker-Dealer as or on behalf of an existing holder or a potential
holder will be treated the same way as an order placed with a
Broker-Dealer by a beneficial owner or potential holder. Similarly,
any failure by a Broker-Dealer to submit to the auction agent an order
for any AMPS held by it or customers who are beneficial owners will be
treated as a beneficial owner's failure to submit to its Broker-Dealer
an order in respect of AMPS held by it. A Broker-Dealer may also
submit orders to the auction agent for its own account as an existing
holder or potential holder, provided it is not an affiliate of the
Company.
There are sufficient clearing bids in an auction if the number of
shares subject to bids submitted or deemed submitted to the auction
agent by Broker-Dealers for potential holders with rates or spreads
equal to or lower than the maximum applicable rate is at least equal
to the number of AMPS subject to sell orders submitted or deemed
submitted to the auction agent by Broker-Dealers for existing
holders. If there are sufficient clearing bids, the applicable rate
for AMPS for the next succeeding dividend period thereof will be the
lowest rate specified in the submitted bids which, taking into account
such rate and all lower rates bid by Broker-Dealers as or on behalf of
existing holders and potential holders, would result in existing
holders and potential holders owning the AMPS available for purchase
in the auction.
If there are not sufficient clearing bids, the applicable rate
for the next dividend period will be the maximum applicable rate on
the auction date. However, if the Company has declared a special
dividend period and there are not sufficient clearing bids, the
applicable rate for the next dividend period will be the same as
during the current dividend period. If there are not sufficient
clearing bids, beneficial owners of AMPS that have submitted or are
deemed to have submitted sell orders may not be able to sell in the
auction all shares subject to such sell orders. If all of the
outstanding AMPS are the subject of submitted hold orders, then the
dividend period following the auction will automatically be the same
length as the preceding dividend period and the applicable rate for
the next dividend period will be the 30-day "AA" Composite Commercial
Paper Rate. The A30-day 'AA' Composite Commercial Paper Rate@ is the
30-day rate on commercial paper issued by corporations whose bonds are
rated AA by S&P as made available by the Federal Reserve Bank of New
York or, if such rate is not made available by the Federal Reserve
Bank of New York, the arithmetical average of such rates as quoted to
the auction agent by Merrill Lynch, Pierce, Fenner & Smith
Incorporated or such other commercial paper dealer as may be appointed
by the Company.
The auction procedures include a pro rata allocation of shares
for purchase and sale, which may result in an existing holder
continuing to hold or selling, or a potential holder purchasing, a
number of AMPS that is different than the number of shares specified
in its order. To the extent the allocation procedures have that
result, Broker-Dealers that have designated themselves as existing
holders or potential holders in respect of customer orders will be
required to make appropriate pro rata allocations among their
respective customers.
Settlement of purchases and sales will be made on the next
business day (which is also a dividend payment date) after the auction
date through DTC. Purchasers will make payment through their Agent
Members in same-day funds to DTC against delivery to their respective
Agent Members. DTC will make payment to the sellers' Agent Members in
accordance with DTC's normal procedures, which now provide for payment
against delivery by their Agent Members in same-day funds.
The auctions for AMPS will normally be held every fourth
[Tuesday], and each subsequent dividend period will normally begin on
the following [Wednesday].
Secondary Market Trading and Transfer of AMPS
The Broker-Dealers are expected to maintain a secondary trading
market in AMPS outside of auctions, but are not obligated to do so,
and may discontinue such activity at any time. There can be no
assurance that any secondary trading market in AMPS will provide
owners with liquidity of investment. The AMPS are not registered on
any stock exchange or on the NASDAQ system. Investors who purchase
shares in an auction for a special dividend period in which the Bid
Requirements, if any, do not require a bid to specify a spread, should
note that because the dividend rate on such shares will be fixed for
the length of such dividend period, the value of the shares may
fluctuate in response to changes in interest rates and may be more or
less than their original cost if sold on the open market in advance of
the next auction. Investors who purchase shares in an auction for a
special dividend period in which the Bid Requirements require a bid to
specify a spread should be aware that the value of their shares may
also fluctuate and may be more or less than their original cost if
sold on the open market in advance of the next auction, particularly
if market spreads narrow or widen in a manner unfavorable to such
purchaser's position.
A beneficial owner or an existing holder may sell, transfer or
otherwise dispose of AMPS only in whole shares and only (a) pursuant
to a bid or sell order placed with the auction agent in accordance
with the auction procedures; (b) to a Broker-Dealer; or (c) to such
other persons as may be permitted by the Company; provided, however,
that (1) a sale, transfer or other disposition of AMPS from a
customer of a Broker-Dealer who is listed on the records of that
Broker-Dealer as the holder of such shares to that Broker-Dealer or
another customer of that Broker-Dealer shall not be deemed to be a
sale, transfer or other disposition if such Broker-Dealer remains the
existing holder of the shares; and (2) in the case of all transfers
other than pursuant to auctions, the Broker-Dealer (or other person,
if permitted by the Company) to whom such transfer is made will advise
the auction agent of such transfer.
TAXES
Federal Income Tax Matters
The Company has qualified and elected, and intends to continue to
qualify, as a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986, as amended, and intends to distribute
at least 90% of its net investment income (including taxable income,
tax-exempt interest income and net short-term capital gain, but not
net capital gain, which is the excess of net long-term capital gain
over net short-term capital loss) and substantially all of its net
capital gain to its shareholders. The Company will not be subject to
Federal income tax on any net investment income and net capital gain
that it distributes to its shareholders, but will be subject to
Federal income tax at the regular corporate income tax rate on any net
investment income that it retains.
The Company expects that a substantial portion of the Company's
dividends to the common shareholders and the holders of the AMPS will
be fully taxable as ordinary income. In addition, the Company also
intends to distribute to its shareholders amounts that are treated as
long-term capital gain. The Company will allocate distributions to
shareholders that are treated as long-term capital gain and ordinary
income, if any, proportionately among the common shares and AMPS.
The sale or other disposition of common shares or AMPS of the
Company will normally result in capital gain or loss to shareholders.
Present law taxes both long-term and short-term capital gains of
corporations at the rates applicable to ordinary income. For
non-corporate taxpayers, under current law short-term capital gains
and ordinary income will be taxed at a maximum rate of 39.6%, while
long-term capital gains will generally be taxed at a maximum rate of
20%. Because of certain limitations on itemized deductions and the
deduction for personal exemptions applicable to higher income
taxpayers, the effective rate of tax may be higher in certain
circumstances. Losses realized by a shareholder on the sale or
exchange of shares of the Company held for six months or less are
disallowed to the extent of any exempt-interest dividends received
with respect to such shares, and, if not disallowed, such losses are
treated as long-term capital losses to the extent of any distribution
of net capital gain received with respect to such shares. A
shareholder's holding period is suspended for any periods during which
the shareholder's risk of loss is diminished as a result of holding
one or more other positions in substantially similar or related
property, or through certain options or short sales. Any loss realized
on a sale or exchange of shares of the Company will be disallowed to
the extent those shares of the Company are replaced by other shares
within a period of 61 days beginning 30 days before and ending 30 days
after the date of disposition of the original shares. In that event,
the basis of the replacement shares of the Company will be adjusted to
reflect the disallowed loss.
The statement of additional information contains a more detailed
summary of the Federal income tax rules that apply to the Company and
its shareholders. Legislative, judicial or administrative action may
change the tax rules that apply to the Company or its shareholders,
and any such change may be retroactive. You should consult with your
tax advisor about Federal income tax matters.
State and Local Tax Matters
You should consult with your tax advisor about state and local
tax matters.
DETERMINATION OF NET ASSET VALUE
The net asset value of common shares of the Company will be
computed based upon the value of the Company's portfolio securities
and other assets. Net asset value per common share of the Company
will be determined as of the close of the regular trading session on
the New York Stock Exchange no less frequently than Friday of each
week and the last business day of each 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 shall be calculated on
such earlier or later day as determined by the Adviser. The Company
calculates net asset value per common share of the Company by
subtracting the Company's liabilities (including accrued expenses,
dividends payable and any borrowings of the Company) and the
liquidation value of any outstanding preferred shares (including AMPS)
of the Company from the Company's total assets (the value of the
securities the Company holds plus cash or other assets, including
interest accrued but not yet received) and dividing the result by the
total number of common shares of the Company outstanding.
The Company values its common and preferred securities 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.
REPURCHASE OF COMMON SHARES
Shares of closed-end investment companies often trade at a
discount to their net asset values, and the Company's common shares
may also trade at a discount to their net asset value. The market
price of the Company's common shares will be determined by such
factors as relative demand for and supply of such common shares in the
market, the Company's net asset value, general market and economic
conditions and other factors beyond the control of the Company.
Although the Company's common shareholders will not have the right to
have the Company redeem their common shares, the Company may, subject
to the restrictions described above under "Description of AMPS", take
action to repurchase common shares in the open market or make tender
offers for its common shares at their net asset value. This may, but
will not necessarily, have the effect of reducing any market discount
from net asset value. See "Repurchase of Common Shares" in the
statement of additional information.
DESCRIPTION OF CAPITAL STOCK
The Articles currently authorize the issuance of 240 million
shares of common stock and 10 million shares of preferred stock, par
value $.01 per share (which may be issued from time to time in such
series and with such designations, preferences, and other rights,
qualifications, limitations and restrictions as are determined in a
resolution of the Board). In connection with the offering of AMPS
described herein the Company will offer 775 AMPS.
Common Shares
The Company has no present intention of offering any additional
shares of capital stock other than AMPS as described herein. Any
additional offerings of shares of capital stock, if made, will require
approval by the Board. Any additional offering of common 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 Company's common shareholders.
So long as any AMPS or any other preferred shares of the Company
are outstanding, holders of common shares of the Company will not be
entitled to receive any net income of or other distributions from the
Company unless all accumulated dividends on outstanding preferred
shares (including the AMPS) have been paid, and unless asset coverage
(as defined in the 1940 Act) with respect to such preferred shares
would be at least 200% after giving effect to such distributions. See
"Description of AMPS-Dividends and Dividend Periods" for other
restrictions on dividends to holders of common shares which will be
applicable for so long as any preferred shares of the Company are
outstanding.
The common shares have traded on the New York Stock Exchange (the
"Exchange") from between February 19, 1993 to August 27, 1999, under
the symbol "PFM". From August 28, 1999 to the present, the common
shares have traded on the Exchange under the symbol "BTF". On May
____, 2000, there were 9,416,743 common shares of the Company issued
and outstanding and the net asset value per common share was $[ ] and
the closing price per common share on the NYSE was $[ ].
Preferred Stock
Under the Company's charter, the Company is authorized to issue
10 million shares of preferred stock, $.01 par value. The Board is
authorized to classify and reclassify any unissued shares of capital
stock from time to time by setting or changing the preferences,
conversion or other rights, voting powers, restrictions, limitations
as to dividends, qualifications or terms or conditions of redemption
of such shares of stock. Under the 1940 Act, the Company 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 Company or the payment of dividends.
Holders of common shares and outstanding preferred shares (i.e., the
MMP Shares) of the Company have no preemptive right to purchase any
preferred shares (including the AMPS) that might be issued. It is
anticipated that the net asset value per share of the Preferred Stock
will equal its original purchase price per share plus accrued
dividends per share. See "Description of AMPS" for a description of
the rights, preferences, privileges and other terms of the AMPS.
Anti-takeover Provisions of the Charter and By-Laws
The Company presently has provisions in its charter and By-Laws
(commonly referred to as "antitakeover" provisions) which may have the
effect of limiting the ability of other entities or persons to acquire
control of the Company, to cause it to engage in certain transactions
or to modify its structure:
* A director elected by the holders of capital stock (i.e., the
common shares, the AMPS and any other preferred shares) or by the
holders of AMPS and any other preferred shares may be removed
from office with or without cause only by vote of the holders of
at least 80% of the shares of capital stock or preferred shares,
as the case may be, of the Company entitled to be voted on the
matter.
* The affirmative vote of at least 80% of the directors and of the
holders of at least 80% of the Company's outstanding shares of
common stock and preferred shares (including the AMPS) entitled
to be voted on the matter, voting as a single class, and the
affirmative vote of 80% of outstanding preferred shares
(including the AMPS) voting as a separate class, will be required
to authorize the Company's conversion from a closed-end to an
open-end investment company, which conversion would result in
delisting of the common shares from the NYSE. Conversion to an
open-end investment company would require redemption of all
outstanding preferred shares of the Company.
* The Board is classified into three classes, each with a term of
three years, with only one class of directors standing for
election in any year. Such classification may prevent
replacement of a majority of the directors for up to a two year
period. The affirmative vote of at least 80% of the Company's
outstanding shares of capital stock entitled to be voted on the
matter, voting as a single class, and the affirmative vote of a
majority of outstanding AMPS, voting as a separate class, will be
required to amend the charter or By-Laws to change any of the
foregoing provision.
* Subject to certain limited exceptions provided in the Articles,
the Articles also require the favorable vote of at least 80% of
the directors and at least 80% of the votes entitled to be cast
by holders of common stock and any outstanding preferred stock
voting as a single class, and at least 80% of the votes entitled
to be cast by holders of any outstanding preferred stock
(including the AMPS), voting as a separate class, to approve,
adopt or authorize the following:
(1) merger, consolidation or share exchange of the Company
with or into any other person;
(2) issuance or transfer by the Company (in one or a
series of transactions in any 12 month period) of
any securities of the Company to any other person
or entity for cash, securities or other property
(or combination thereof) having an aggregate fair
market value of $1,000,000 or more excluding sales
of securities of the Company in connection with a
public offering or private placement, issuances of
securities of the Company pursuant to a dividend
reinvestment and cash purchase plan adopted by the
Company and issuances of securities of the Company
upon the exercise of any stock subscription rights
distributed by the Company;
(3) sale, lease, exchange, mortgage, pledge, transfer or
other disposition by the Company (in one or a series of
transactions in any 12 month period) to or with any person
of any assets of the Company having an aggregate fair
market value of $1,000,000 or more except for portfolio
transactions effected by the Company in the ordinary course
of its business; ((1), (2) and (3) each being a "Business
Combination";
(4) any proposal as to the voluntary liquidation or
dissolution of the Company or any amendment to the
Articles to terminate its existence; and
(5) any shareholder proposal as to specific investment
decisions made or to be made with respect to the
Company's assets.
In addition, under the Company's charter, the Company has elected
to be subject to provisions of the Maryland General Corporation Law
that generally provide that, unless an exemption is available, certain
mergers, consolidations, shares exchanges, asset sales, stock
issuances, liquidations or dissolutions, recapitalizations, and other
transactions with a beneficial owner of 10% or more of the voting
power of a Maryland corporation (an "interested stockholder") or any
affiliate of an interested stockholder are prohibited for a period of
five years following the most recent date on which the interested
stockholder became an interested stockholder. Thereafter, such a
business combination must be recommended by the Board and approved by
the affirmative vote of at least (i) 80% of the votes entitled to be
cast by outstanding shares of voting stock of the corporation and (ii)
66b% of the votes entitled to be cast by holders of voting stock other
than voting stock held by the interested stockholder who is (or whose
affiliate is) a party to the business combination or an affiliate or
associate of the interested stockholder (with dissenting stockholders
having certain appraisal rights), unless certain value and other
standards are satisfied or some other statutory exemption is
available. The vote specified in the preceding sentence will be
required to amend the charter to change the provisions subjecting the
Company to the provisions of the Maryland General Corporation Law
discussed above.
The percentage of votes required under these provisions, which
are greater than the minimum requirements under Maryland law or in the
1940 Act, will make more difficult a change in the Company's business
or management and may 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 Company in a tender offer or similar transaction. The
Board, however, has considered these antitakeover provisions and
believes they are in the best interests of shareholders.
OTHER SERVICE PROVIDERS
Custodian. The Company's securities and cash are held under a
Custodial Agreement with [ ] (the "Custodian"), located at
________________________________________________.
Transfer Agent, Dividend Disbursing Agent and Registrar. The
transfer agent, dividend disbursing agent and registrar for the AMPS
will be [Deutsche Bank Group], -
________________________________________. The transfer agent, dividend
disbursing agent and registrar for the common shares of the Company is
[_________________________________].
UNDERWRITING
Subject to the terms and conditions of the purchase agreement
dated the date hereof, Merrill Lynch, Pierce, Fenner and Smith
Incorporated has agreed to purchase, and the Company has agreed to
sell all of the AMPS offered hereby.
The purchase agreement provides that the obligations of the
underwriter to purchase the shares included in this Offering are
subject to the approval of certain legal matters by counsel and to
certain other conditions. The underwriter is obligated to purchase all
the AMPS if it purchases any of the shares. In the purchase
agreement, the Company and the Adviser have agreed to indemnify the
underwriters against certain liabilities, including liabilities
arising under the Securities Act of 1933, or to contribute payments
the underwriters may be required to make for any of those liabilities.
The underwriter proposes to initially offer some of the AMPS
directly to the public at the public offering price set forth on the
cover page of this prospectus and some of the AMPS to certain dealers
at the public offering price less a concession not in excess of $
per share. The sales load the Company will pay of per share is
equal to % of the initial offering price. The underwriter may
allow, and such dealers may reallow, a concession not in excess of $
per share on sales to certain other dealers. After the initial public
offering, the underwriter may change the public offering price and the
concession. Investors must pay for any AMPS purchased in the initial
public offering on or before , 2000.
The Company anticipates that the underwriter may from time to
time act as broker or dealer in executing the Company's portfolio
transactions after it has ceased to be underwriters. The underwriter
is an active underwriter of, and dealer in, securities and acts as
market makers in a number of such securities, and therefore can be
expected to engage in portfolio transactions with the Company.
The Company anticipates that the underwriter or its affiliates
may, from time to time, act in auctions as Broker-Dealers and receive
fees as set forth under "The Auction." The underwriter engages in
transactions with, and performs services for, the Company in the
ordinary course of business.
LEGAL OPINIONS
Certain legal matters in connection with the AMPS offered hereby
will be passed upon for the Company by Willkie Farr & Gallagher, New
York, New York; for the Underwriters by Skadden, Arps, Slate, Meagher
& Flom LLP, New York, New York. Such counsel will rely, as to matters
of Maryland law, on the opinion of Venable, Baetjer & Howard, LLP,
Baltimore, Maryland.
EXPERTS
The data in the "Financial Highlights" section of this prospectus
are based upon financial statements that have been audited by
PricewaterhouseCoopers, LLP, located at___________________,
independent auditors, as indicated in their reports with respect
thereto, and are incorporated by reference herein in reliance on their
reports given on their authority as experts in auditing and
accounting.
REPORTS TO STOCKHOLDERS
The Company sends unaudited semiannual reports and audited annual
reports, including a list of investments held, to stockholders.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 and the 1940 Act and in accordance
therewith is required to file reports, proxy statements and other
information with the SEC. Any such reports, proxy statements and other
information can be inspected and copied at the public reference
facilities of the SEC, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and the SEC's New York Regional Office, Seven
World Trade Center, New York, New York 10048 and its Chicago Regional
Office, Suite 1400, Northwestern Atrium Center, 500 West Madison
Street, Chicago, Illinois 60661. Reports, proxy statements and other
information concerning the Company can also be inspected at the
offices of the NYSE, 20 Broad Street, New York, New York 10005.
Additional information regarding the Company and the AMPS is
contained in the Registration Statement on Form N-2, including
amendments, exhibits and schedules thereto, relating to such shares
filed by the Company with the SEC. 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 Company 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 SEC's principal office in Washington, D.C., and copies
of all or any part thereof may be obtained from the SEC upon the
payment of certain fees prescribed by the SEC. The SEC maintains a
web site (http://www.sec.gov) that contains the Registration
Statement, other documents incorporated by reference, and other
information the Company has filed electronically with the SEC,
including proxy statements and reports filed under the Securities
Exchange Act of 1934.
TABLE OF CONTENTS FOR THE STATEMENT OF
ADDITIONAL INFORMATION
Page
INVESTMENT OBJECTIVE AND POLICIES . . . . . . . . . . . S-2
INVESTMENT POLICIES AND TECHNIQUES . . . . . . . . . . .S-4
MANAGEMENT OF THE COMPANY . . . . . . . . . . . . . . . .S-7
PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . S-12
ADDITIONAL INFORMATION CONCERNING THE AUCTIONS FOR AMPS S-13
REPURCHASE OF COMMON SHARES . . . . . . . . . . . . . . .S-14
TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . S-15
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . S-19
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . S-19
APPENDIX A-GENERAL CHARACTERISTICS AND RISKS OF
HEDGING TRANSACTIONS . . . . . . . . . . . . . . . . . . A-1
APPENDIX B-1 - ARTICLES OF AMENDMENT . . . . . . . . . . B-1-1
APPENDIX B-2 - ARTICLES OF AMENDMENT . . . . . . . . . . B-2-1
APPENDIX B-3 - ARTICLES SUPPLEMENTARY . . . . . . . . . .B-3-1
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, 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,
State of Colorado, on the _____ day of May, 2000.
BOULDER TOTAL RETURN FUND, INC.
By: /s/ Stephen C. Miller
_________________________________________
Stephen C. Miller
President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the date indicated.
Signature Title Date
Director, Chairman May __, 2000
/s/ Stephen C. Miller Of the Board, President
_____________________________ and Chief Executive
Stephen C. Miller
/s/ Stewart R Horejsi
_____________________________ Director May __, 2000
Stewart R. Horejsi
/s/ James G. Duff
_____________________________ Director May __, 2000
James G. Duff
/s/ Alfred G. Aldridge, Jr.
_____________________________ Director May __, 2000
Alfred G. Aldridge, Jr.
/s/ Richard I. Barr
_____________________________ Director May __, 2000
Richard I. Barr
