<PAGE> 1
[BOULDER TOTAL RETURN FUND, INC. LOGO]
Dear Shareholder:
Although this past year saw the Fund's objective change from income to
total return, the transition is not complete. While the Fund has made some
headway in investing in common stocks, we are biding our time. As of November
30, the Fund had about 16% of its assets invested in common stocks. As of this
writing, that percentage has increased to about 19%. The market has not been
much help yet. The Dow Jones Industrial Average, the S&P 500 Index and the
NASDAQ index each reached an all time high this year. The NASDAQ went plum
crazy, up over 75% as of this writing, and that is on the heels of a 40%
increase in '98. While this does not make for the best investing climate as far
as our new common stock investments are concerned, we are finding some
opportunities and continue to seek others. We are sitting on some cash, looking
and waiting for good opportunities.
The headway we've made in common stocks has been mostly concentrated in one
issue - Berkshire Hathaway (BRK). Why the large purchases in this company? BRK
meets all of the Fund's investment criteria (listed below in the Q&A section).
We have been buying the stock as it has declined and are confident that the Fund
has been afforded a relatively good opportunity to climb on board an excellent
company. We expect to own this stock for a very long time.
The fiscal year ending November 30, 1999 produced mixed results for the
Fund. Mixed, because what we own has gone down (which is bad), but what we want
to buy has gone down even more (which is good). We are watching to see if these
will go down further. The Fund's total return on Net Asset Value ("NAV") was
- -5.2% for the fiscal year. The Fund's investments in preferred stocks declined
in value as interest rates increased this year. The Fund's hedge gains made up
for some of these losses, but not all of them. Coming into this year, the Fund
had significant unrealized appreciation on its preferred stocks. Through trading
and mandatory redemptions, the Fund realized significant capital gains in the
first half of this year. However, in the second half, the Fund's unrealized
appreciation declined with the increase in interest rates, and thus produced
some significant unrealized losses in the Fund's hybrid preferreds. We were able
to realize enough losses through both the trading and outright sale of
preferreds during the second half of the year to offset the earlier capital
gains. Thus the Fund did not have any capital gains to pay out this year.
Beginning next year, the Fund will go to a quarterly dividend. The first
dividend next year is expected to be paid in March.
As of the fiscal year end, the Fund's market price had declined more than
its Net Asset Value, thus resulting in a discount of 24%. We receive questions
and suggestions from our shareholders regarding a broad spectrum of issues,
including those pertaining to the discount. We want to respond to all questions
and concerns. However, it would be very time consuming to respond to each
shareholder inquiry individually and unfair to answer some shareholders and not
others. Therefore, we intend to accumulate the inquiries and distill them into a
set of concise questions that the advisers to the Fund will address in the
periodic letters to shareholders. Following is the first attempt at the use of
this policy.
Q. With the Fund shares selling at such a deep discount to the NAV, why doesn't
management adopt a share repurchase program?
A1. In principle, we are not opposed to share repurchases. The adviser has
considered ideas as to how this might be implemented some years down the road in
the right circumstances. At the current time, however, there are issues that
make repurchases either impractical or impossible. Most notably is the leverage
the Fund has. We believe that the MMP source of financing is a valuable asset
and will continue to be so in the future. Adopting a share repurchase program
would effectively increase the leverage, which is not what we want to do.
Over-leveraging might result in the Fund having to liquidate hastily at
unattractive prices if the value of its assets declined, since the Fund is
limited in its percentage of leverage. We always want to pick the time we sell
assets and not be forced into selling them at undesirable times.
A2. Although repurchasing the Fund's stock at a 24% discount may represent an
attractive return on investment, the adviser thinks there are other great
companies with good fundamentals and predictable growth prospects priced even
more attractively. It is the adviser's objective to buy the most for the money
at any given time and they believe there are other things to buy that will give
us better results over the long term than the one time gain we would get by
buying our own stock back.
Q. Why doesn't the Fund make a tender offer for its own stock?
A. Again, as discussed above with respect to share repurchases, we are not
philosophically opposed to a tender offer in the long run. In fact, the option
is discussed and considered periodically by the Board of Directors and could
very well be used a few years down the road. However, right now, considering the
lack of liquidity of our preferred portfolio and other technical factors, some
of which were listed above, leads us to conclude that this is not a wise
alternative now.
<PAGE> 2
Q. Why doesn't the Fund include some technology issues in its portfolio?
A. Many tech stocks have had significant gains recently. Some tech stocks may go
higher and some will eventually decline in value. At this point, we could not
pick technology stocks with any degree of confidence in their future valuations.
Instead, the Adviser tries to pick companies it understands and in which it has
a high degree of confidence for their future. Shareholders should not anticipate
that the Fund will make significant investments in technology issues.
Q. What characteristics will the Fund seek in its prospective companies?
A. Generally speaking, we expect that the companies the Fund will pursue will
have most of the following characteristics:
1. Appropriately priced shares relative to earnings and growth;
2. High return on equity and assets;
3. Low and wise use of debt;
4. Sensible, owner friendly use of retained earnings;
5. Reasonably predictable future business, performance and earnings;
6. Reasonable and steady growth;
7. Sensible stock option programs for employees.
In summary, the companies should be of such a caliber that we would expect (and
would be happy) to own them for a very long time.
Q. We are disappointed that both the market price and NAV of the Fund have gone
down. Why has this happened?
A. First, we are disappointed too. Part of the falling NAV resulted from rising
interest rates which have driven down the price of the preferred portfolio. In
addition, the yield spread between the preferred stocks we own and the put
options on US Treasury bond futures we use to hedge has widened and thus the
Fund has made less on its hedge than it lost on its preferreds. The balance of
the falling NAV is the result of the Fund having acquired stock in what we view
as some really great companies at prices we view to be attractive. We find that
in the long run, stock prices track business performance quite closely. However,
just because we buy a stock doesn't mean the price will increase right away.
Although this would be nice, it would likely be dumb luck. The truth is, we have
no ability to predict where the price of a company will be next week, next
month, or even next year. However, we believe that over the next five years the
performance of the companies we choose will progress nicely. Shareholders should
be aware that if the market prices of our investments creep lower, we may very
well buy a larger stake.
We believe our investment approach will be rewarding to those who remain with
the Fund for the long run. We intend to stay in for the long run and want to
attract investors who have similar objectives.(1) We question the
appropriateness of the Fund's shares for short term holders and thus suggest
that such investors seek a different fund that more suits their style. We intend
to run the equity portion of the Fund as a focused portfolio of only a few high
caliber companies. This approach inevitably results in more volatility and thus,
from time to time shareholders may see the portfolio fluctuate in excess of what
they have experienced with more diversified funds. We seek to attract investors
who, like we, are not concerned by such fluctuations and instead focus more on
the intrinsic, long-term value of the portfolio. It is an essential element in
our investment philosophy not to sell when the market is falling. That is the
time to buy, not sell. We continue to be surprised to see the Fund's portfolio
companies selling as cheaply as they are. These companies may go down even more,
which will also surprise us, but our motivation to buy a company is driven more
by what is happening in its business, and less by what is happening to its
price. We don't know why they are so cheap, but we are glad they are so we can
become part owners of wonderful businesses at reasonable prices.
We hope that the foregoing discussion addresses the concerns of those
shareholders who have taken the time to write us. Again, we welcome all
shareholder input and participation.
Sincerely yours,
/s/ Steven C. Miller
Stephen C. Miller
President
December 16, 1999
(1)All of the directors and executive officers are shareholders of the Fund and
the Horejsi family trusts own 42% of the Fund's shares.
<PAGE> 3
- --------------------------------------------------------------------------------
BOULDER TOTAL RETURN FUND, INC.
COMMENTS FROM SPECTRUM ASSET MANAGEMENT, THE FUND'S PREFERRED STOCK SUB-ADVISER
The 4th fiscal quarter ended November 30, 1999 was unfavorable for the
preferred securities markets - primarily caused by the Federal Reserve Bank
("Fed") raising the Federal Funds Rate by another 25 basis points (bps) over the
period. This completely reverses the Fed's 75bps rate cut of last fall stemming
from the "flight to quality" events in the first quarter. The continued strong
economic growth in the US has caused Alan Greenspan to become increasingly
nervous with the "new era" economy and its continued ability to grow above
trendline (2.5%-3%) WITHOUT meaningful inflationary excesses. Indeed, Mr.
Greenspan's worries seem to have merit as the 3rd quarter GDP report was revised
upward to 5.5% from the 4.8% preliminary report and the GDP Deflator was revised
0.1% higher. In response, long-term interest rates (which can directly impact
the Fund's preferred stock valuations) have moved 24 bps higher during the
period from 6.17% to 6.41%. It is still possible that long-term interest rates
will continue to edge modestly higher if the Fed increases the Funds Rate by
another 25bps in the 1Q2000.
Irrespective of the direction of long - term interest rates next year, we
do not expect preferred securities to underperform on a spread basis next year.
Year 2000 should provide US Treasury buybacks, a slower economy and less Fed
action - particularly as we approach election time. As a result, we expect
demand for spread product to increase which should help the relative performance
of preferred securities. Note that 1999 was the first year that interest rates
rose by over 100 bps in a calendar year since 1994 - the difference this time is
that common stocks far outperformed in 1999 (24%+) compared to 1994 (2%+).
Consequently, preferred securities (particularly $25 par preferreds) were
largely chosen as a source of tax losses needed to offset large gains in common
stocks. This selling (extreme in $25 par preferreds) caused the hedge to be
slower in its rise than the decline in preferred securities prices so the
"safety net" adjustments on the purchased put options on Treasury futures had a
bit more slack than usual. As we expect this slack to recoil after year end, we
have been adding to discount $25 par positions to earn back more total return in
2000 than was given up in 1999 as the combination of wider spreads and lower
dollar prices represents long run opportunity for improved asset - liability
matching.
FINANCIAL DATA
PER SHARE OF COMMON STOCK (UNAUDITED)
- -------------------------------------------------
<TABLE>
<CAPTION>
DIVIDEND
DIVIDEND NET ASSET NYSE REINVESTMENT
PAID VALUE CLOSING PRICE PRICE (1)
-------- --------- ------------- ------------
<S> <C> <C> <C> <C>
December 31, 1998........................................... $0.8200 $15.27 $13.1250 $13.22
January 31, 1999............................................ 0.0770 15.17 12.0000 12.08
February 28, 1999........................................... 0.0770 15.19 12.1875 12.22
March 31, 1999.............................................. 0.0770 15.11 12.0000 11.97
April 30, 1999.............................................. 0.0770 15.13 11.8125 11.85
May 31, 1999................................................ 0.0770 15.01 11.7500 11.77
June 30, 1999............................................... 0.0770 14.82 11.5000 11.52
July 31, 1999............................................... 0.0770 14.50 11.3750 11.30
August 31, 1999............................................. 0.0770 14.22 11.3750 11.34
September 30, 1999.......................................... 0.0770 13.72 10.8125 10.95
October 31, 1999............................................ 0.0770 13.99 10.8750 10.97
November 30, 1999........................................... 0.0770 13.32 10.1875 10.18
</TABLE>
- ---------------
(1) Whenever the net asset value per share of the Fund's common stock is less
than or equal to the market price per share on the payment date, new shares
issued will be valued at the higher of net asset value or 95% of the then
current market price. Otherwise, the reinvestment shares of common stock
will be purchased in the open market.
3
<PAGE> 4
- --------------------------------------------------------------------------------
BOULDER TOTAL RETURN FUND, INC.
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1999
- ---------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES/PAR (NOTE 1)
- ---------- --------
<C> <S> <C>
PREFERRED STOCKS AND SECURITIES -- 65.6 %
ADJUSTABLE RATE PREFERRED STOCKS -- 10.4 %
UTILITIES -- 1.6 %
60,000 Niagara Mohawk Power Corporation,
Adj. Rate Pfd. ......................... $ 3,027,900
11,600 Tennessee Valley Authority,
Series D, Adj. Rate Pfd. ............... 259,550
------------
TOTAL UTILITIES ADJUSTABLE RATE PREFERRED
STOCKS.................................. 3,287,450
------------
BANKING -- 7.9 %
Bank One Corporation:
26,600 Series B, Adj. Rate Pfd. ............... 2,546,950
17,400 Series C, Adj. Rate Pfd. ............... 1,776,153
57,500 Bankers Trust New York Corporation,
Series Q, Adj. Rate Pfd. ............... 1,347,685
51,000 Chase Manhattan Corporation,
Series L, Adj. Rate Pfd. ............... 4,870,500
Citigroup Inc.:
138,500 Series Q, Adj. Rate Pfd. ............... 3,246,163
32,300 Series R, Adj. Rate Pfd. ............... 757,047
36,000 Wells Fargo & Company,
Series B, Adj. Rate Pfd. ............... 1,575,000
------------
TOTAL BANKING ADJUSTABLE RATE PREFERRED
STOCKS.................................. 16,119,498
------------
MISCELLANEOUS INDUSTRIES -- 0.9%
95,600 Conagra Capital LC,
Series B, Adj. Rate Pfd. ............... 1,726,775
------------
TOTAL ADJUSTABLE RATE PREFERRED STOCKS.... 21,133,723
------------
FIXED RATE PREFERRED STOCKS AND SECURITIES -- 55.2 %
UTILITIES -- 26.5 %
Alabama Power Company:
16,100 7.00% Pfd., Series B.................... 340,616
42,500 Alabama Power Capital Trust I,
7.375% TOPrS............................ 949,609
50,700 Alabama Power Capital Trust II,
7.60% TOPrS............................. 1,167,684
Baltimore Gas & Electric Company:
29,700 6.70% Pfd., Series 1993................. 3,189,483
15,080 6.99% Pfd., Series 1995................. 1,650,129
17,678 Columbus Southern Power Company,
7.92% Jr. Sub. Debt, Series B........... 413,400
135,650 CPL Capital,
8.00% QUIPS, Series A................... 3,143,011
Duke Energy Corporation:
7,134 4.50% Pfd., Series C.................... 524,313
7,934 7.85% Pfd., Series S.................... 863,100
1,297 7.00% Pfd., Series W.................... 138,228
52,250 Duquesne Capital,
8.375% MIPS, Series A................... 1,250,734
9,400 El Paso Tennessee Pipeline Company,
8.25% Pfd., Series A.................... 493,970
58,900 Enterprise Capital Trust I,
7.44% TOPrS, Series A................... 1,194,198
Florida Power & Light Company:
5,000 4.35% Pfd., Series E.................... 352,675
42,350 6.98% Pfd., Series S.................... 4,521,498
12,400 7.05% Pfd., Series T.................... 1,329,714
22,600 Georgia Power Company Capital Trust II,
9.00% MIPS.............................. $ 566,413
73,900 JCP&L Capital,
8.56% Pfd., Series A.................... 1,801,313
7,933 Jersey Central Power & Light Company,
7.52% Sinking Fund Pfd., Series K....... 830,347
3,640 Kansas City Power & Light Company,
4.50% Pfd. ............................. 281,474
2,500,000 KN Energy, Inc., KN Capital Trust I,
8.56% 4/15/27 Capital Security,
Series B................................ 2,399,654
11,400 MidAmerican Energy Financing I,
7.98% QUIPS, Series A................... 264,024
24,200 Mission Energy Company,
9.875% MIPS, Series A................... 607,269
1,400 Mississippi Power Company,
7.00% Pfd. ............................. 146,471
8,500 Monongahela Power Company,
$7.73 Pfd., Series L.................... 925,778
13,782 Nevada Power Company, NVP Capital I,
8.20% QUIPS, Series A................... 313,541
Niagara Mohawk Power Corporation:
12,600 4.10% Pfd. ............................. 761,922
11,150 7.85% Sinking Fund Pfd. ................ 283,322
23,150 9.50% Pfd. ............................. 588,126
Ohio Edison Company:
2,700 4.44% Pfd. ............................. 177,701
8,000 4.56% Pfd. ............................. 547,155
18,020 Ohio Power Company,
7.92% QUIDS, Series B................... 411,036
3,500,000 PECO Energy Capital Trust III, $7.38 Pfd.,
Capital Security, Series D.............. 3,062,820
106,925 Pennsylvania Power & Light Company, PP&L
Capital Trust II,
8.10% TOPrS............................. 2,526,103
23,400 PSE&G Capital Trust I,
8.625% QUIPS, Series U.................. 576,225
1,250,000 Puget Sound Capital Trust,
8.231% 6/1/27 Capital Security,
Series B................................ 1,190,878
Puget Sound Energy Inc.:
45,905 7.75% Sinking Fund Pfd. ................ 4,807,172
21,800 7.45% Pfd., Series II................... 583,041
9,960 Rochester Gas & Electric Corporation,
4.75% Pfd., Series I.................... 738,335
17,050 San Diego Gas & Electric Company,
6.80% Pfd. ............................. 445,090
12,719 South Carolina Electric & Gas,
5.125% Purchase Fund Pfd. .............. 545,200
100,000 Southern California Edison,
8.375% QUIDS, Series A.................. 2,462,500
78,000 Transcanada Capital,
8.75% COPrS............................. 1,910,220
21,200 Union Electric Power Company,
$7.64 Pfd. ............................. 2,317,160
4,200 Virginia Electric & Power Company,
$6.98 Pfd. ............................. 446,838
------------
TOTAL UTILITY FIXED RATE PREFERRED STOCKS
AND SECURITIES.......................... 54,039,490
------------
</TABLE>
See Notes to Financial Statements.
4
<PAGE> 5
- --------------------------------------------------------------------------------
BOULDER TOTAL RETURN FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1999
- ---------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES/PAR (NOTE 1)
- ---------- --------
<C> <S> <C>
PREFERRED STOCKS AND SECURITIES (CONTINUED)
FIXED RATE PREFERRED STOCKS AND SECURITIES (CONTINUED)
FINANCIAL SERVICES -- 11.6 %
55,000 Bear Stearns Company,
5.72% Pfd., Series F.................... $ 2,283,875
1,500 Heller Financial, Inc.,
6.95% Pfd., Series D.................... 150,495
132,550 Household Capital Trust II,
8.70% TOPrS............................. 3,234,220
Lehman Brothers Holdings Inc.:
213,150 5.00% Conv. Pfd., Series B.............. 5,979,923
26,300 5.94% Pfd., Series C.................... 1,095,264
22,000 5.67% Pfd., Series D.................... 878,240
Merrill Lynch & Co., Inc.:
33,100 8.00% TOPrS............................. 826,341
139,200 9.00% Pfd., Series A.................... 4,260,390
100,000 SLM Holding Corporation,
6.97% Pfd. ............................. 4,936,000
------------
TOTAL FINANCIAL SERVICES FIXED RATE
PREFERRED STOCKS AND SECURITIES......... 23,644,748
------------
BANKING -- 10.4%
20,000 Australia & New Zealand Banking Group,
9.125% Pfd. ............................ 516,250
5,200 Banco Totta & Acores Financial Inc.,
8.875% Pfd., Series A................... 128,213
560,000 Bank of New York,
7.78% 12/1/26 Capital Security 144A**... 527,034
1,500,000 BankBoston Corporation, BankBoston Capital
Trust II,
7.75% 12/15/26 Capital Security,
Series B................................ 1,387,973
51,800 Citigroup Inc.,
6.213% Pfd., Series G................... 2,403,520
3,100,000 First Empire State Corporation, First
Empire Capital Trust I
8.234% 2/1/27, Capital Security......... 3,037,796
1,000,000 First Union Institutional Capital Trust
II,
7.95% 11/15/29 Capital Security......... 979,934
2,500,000 Greenpoint Capital Trust I,
9.10% 6/1/27 Capital Security........... 2,344,135
250 LaSalle National Corporation,
6.46% Pfd. 144A**....................... 236,266
30,000 Republic New York Corporation,
$1.81 Pfd., Series E.................... 779,814
5,000,000 Republic NY Capital Trust I,
7.75% 11/15/26 Capital Security......... 4,560,546
2,000,000 Republic NY Capital Trust II,
7.53% 12/4/26 Capital Security.......... 1,783,738
1,000,000 Summit Capital Trust I,
8.40% 3/15/27 Capital Security,
Series B................................ 986,372
1,500,000 Washington Mutual Inc.,
8.206% 2/01/27 Capital Security......... 1,436,658
------------
TOTAL BANKING FIXED RATE PREFERRED STOCKS
AND SECURITIES.......................... 21,108,249
------------
INSURANCE -- 3.0 %
32,000 American Re Capital,
8.50% 9/30/25 QUIPS..................... 802,000
72,402 Farmers Group Inc.,
8.45% Pfd. ............................. $ 1,794,212
76,588 Hartford Capital II,
8.35% QUIPS, Series B................... 1,864,535
2,500,000 MMI Capital Trust I,
7.625% 12/15/27 Capital Security,
Series B................................ 1,662,269
------------
TOTAL INSURANCE FIXED RATE PREFERRED
STOCKS AND SECURITIES................... 6,123,016
------------
MISCELLANEOUS INDUSTRIES -- 3.7 %
44,500 Avalonbay Communities,
8.96% Pfd., Series G.................... 956,750
22,700 Conagra Capital LC,
9.35% Pfd., Series C.................... 566,081
Equity Residential Properties:
45,400 9.375% Pfd., Series A................... 1,088,181
22,000 9.65% Pfd., Series F.................... 533,500
57,600 Farmland Industries Inc.,
8.00% Pfd. 144A**....................... 2,634,912
38,700 Prologis Trust,
9.40% Pfd., Series A.................... 904,612
8,700 SBC Communications Inc.,
8.50% Pfd. ............................. 218,859
9,520 Viad Corporation,
$4.75 Sinking Fund Pfd. ................ 550,780
------------
TOTAL MISCELLANEOUS FIXED RATE PREFERRED
STOCKS AND SECURITIES................... 7,453,675
------------
TOTAL FIXED RATE PREFERRED STOCKS AND
SECURITIES.............................. 112,369,178
------------
TOTAL PREFERRED STOCKS AND SECURITIES
(Cost $135,320,844)..................... 133,502,901
------------
COMMON STOCKS -- 15.7 %
INSURANCE -- 15.5 %
230 Berkshire Hathaway Inc., Class A+......... 13,179,000
9,010 Berkshire Hathaway Inc., Class B+......... 16,803,650
20,000 Progressive Corporation................... 1,608,125
------------
31,590,775
------------
UTILITIES -- 0.1 %
7,950 WPS Resources Corporation................. 209,184
------------
INVESTMENT COMPANY -- 0.1 %
8,100 John Hancock Patriot Preferred Dividend
Fund.................................... 84,038
------------
TOTAL COMMON STOCKS
(Cost $33,945,854)...................... 31,883,997
------------
U.S. TREASURY OBLIGATIONS -- 9.8 %
U.S. TREASURY BILL -- 4.9 %
10,000,000 5.165% due 1/20/00++...................... 9,927,869
------------
U.S. TREASURY NOTE -- 4.9 %
10,000,000 5.875% due 2/15/00........................ 10,008,000
------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $19,937,244)...................... 19,935,869
------------
</TABLE>
<TABLE>
<CAPTION>
CONTRACTS
- ---------
<C> <S> <C>
OPTION CONTRACTS -- 0.6% (Cost $2,005,629)
1,192 March Put Options on U.S. Treasury Bond
Futures, expiring 2/21/00+............. 1,283,125
------------
</TABLE>
See Notes to Financial Statements.
5
<PAGE> 6
- --------------------------------------------------------------------------------
BOULDER TOTAL RETURN FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1999
---------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
- --------- --------
<C> <S> <C>
REPURCHASE AGREEMENT -- 9.3 % (Cost $18,949,000)
$18,949,000 Agreement with Warburg Dillon Read, 5.65%
dated 11/30/99, to be repurchased at
$18,951,974 on 12/1/99, collateralized
by $19,328,000 U.S. Treasury Bond,
6.375% due 8/15/27
(value $19,328,000)................... $ 18,949,000
------------
TOTAL INVESTMENTS (Cost $210,158,571*)......... 101.0% 205,554,892
OTHER ASSETS AND LIABILITIES(Net)............... (1.0) (1,945,658)
----- ------------
NET ASSETS..................................... 100.0% $203,609,234
===== ============
</TABLE>
- ---------------
* Aggregate cost for Federal tax purposes was $209,165,498.
** Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from registration
to qualified institutional buyers.
+ Non-income producing.
++ Annualized yield at date of purchase.
<TABLE>
<S> <C>
ABBREVIATIONS:
TOPrS -- Trust Originated Preferred Securities
QUIPS -- Quarterly Income Preferred Securities
MIPS -- Monthly Income Preferred Securities
QUIDS -- Quarterly Income Debt Securities
COPrS -- Canadian Originated Preferred Securities
Capital Securities are debt instruments and the amounts shown in
the Shares/Par column are dollar amounts of par value.
</TABLE>
See Notes to Financial Statements.
6
<PAGE> 7
- --------------------------------------------------------------------------------
BOULDER TOTAL RETURN FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1999
-------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (Cost $210,158,571) (Note 1)
See accompanying schedule.............................. $205,554,892
Dividends and interest receivable......................... 1,122,614
Prepaid expenses.......................................... 153,217
------------
Total Assets...................................... 206,830,723
LIABILITIES:
Payable for securities purchased.......................... $ 2,894,534
Investment advisory fee and Sub-advisory fee payable
(Note 2)................................................ 121,766
Dividends payable to Common Shareholders.................. 68,507
Due to custodian.......................................... 62
Accrued expenses and other payables....................... 136,620
-----------
Total Liabilities................................. 3,221,489
------------
NET ASSETS.................................................. $203,609,234
============
NET ASSETS consist of:
Undistributed net investment income (Note 1).............. $ 508,971
Accumulated net realized gain on investments sold
(Note 1)................................................ 785,096
Unrealized depreciation of investments (Note 3)........... (4,603,679)
Par value of Common Stock................................. 94,167
Paid-in capital in excess of par value of Common Stock.... 129,324,679
Money Market Cumulative Preferred(TM) Stock (Note 5)...... 77,500,000
------------
Total Net Assets.................................. $203,609,234
============
PER SHARE
---------
NET ASSETS AVAILABLE TO:
Money Market Cumulative Preferred(TM) (775 shares
outstanding) redemption value.......................... $100,000.00 $ 77,500,000
Accumulated undeclared dividends on Money Market
Cumulative Preferred(TM) Stock (Note 10)............... 895.64 694,124
----------- ------------
$100,895.64 78,194,124
===========
Common Stock (9,416,743 shares outstanding)............... $13.32 125,415,110
====== ------------
TOTAL NET ASSETS............................................ $203,609,234
============
</TABLE>
See Notes to Financial Statements.
7
<PAGE> 8
- --------------------------------------------------------------------------------
BOULDER TOTAL RETURN FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 1999
-----------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends................................................. $ 9,888,944
Interest.................................................. 4,987,393
------------
Total Investment Income........................... 14,876,337
EXPENSES:
Investment advisory fee and Sub-advisory fee (Note 2)..... $ 1,224,538
Administration fee (Note 2)............................... 408,765
Legal fees................................................ 341,041
Money Market Cumulative Preferred(TM) broker commissions
and Auction Agent fees................................. 196,454
Insurance expense......................................... 132,711
Directors' fees and expenses (Note 2)..................... 116,659
Shareholder servicing agent fees (Note 2)................. 65,183
Audit fees................................................ 49,300
Custodian fees (Note 2)................................... 31,045
Economic consulting fee (Note 2).......................... 30,222
Other..................................................... 142,066
-----------
Total Expenses.................................... 2,737,984
------------
NET INVESTMENT INCOME....................................... 12,138,353
------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
(Notes 1 and 3):
Net realized loss on investments sold during the year..... (503,785)
Change in net unrealized appreciation of investments
during the year........................................ (17,656,849)
------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS............. (18,160,634)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ (6,022,281)
============
</TABLE>
See Notes to Financial Statements.
8
<PAGE> 9
- --------------------------------------------------------------------------------
BOULDER TOTAL RETURN FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
-----------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
NOVEMBER 30, 1999 NOVEMBER 30, 1998
----------------- -----------------
<S> <C> <C>
OPERATIONS:
Net investment income.................................. $ 12,138,353 $ 12,507,859
Net realized gain/(loss) on investments sold during the
year.................................................. (503,785) 7,865,119
Change in net unrealized appreciation of investments
during the year....................................... (17,656,849) (6,623,634)
------------ ------------
Net increase/(decrease) in net assets resulting from
operations............................................ (6,022,281) 13,749,344
DISTRIBUTIONS:
Dividends paid from net investment income to Money
Market Cumulative Preferred(TM) Stock Shareholders
(Note 5).............................................. (3,245,451) (2,354,735)
Distributions paid from net realized capital gains to
Money Market Cumulative Preferred(TM) Stock
Shareholders (Note 5)................................. (254,263) (1,320,962)
Dividends paid from net investment income to Common
Stock Shareholders.................................... (9,650,152) (10,080,323)
Distributions paid from net realized capital gains to
Common Stock Shareholders............................. (6,047,683) (2,735,864)
------------ ------------
NET DECREASE IN NET ASSETS FOR THE YEAR..................... (25,219,830) (2,742,540)
NET ASSETS:
Beginning of year...................................... 228,829,064 231,571,604
------------ ------------
End of year (including undistributed net investment
income of $508,971 and $1,427,983, respectively)...... $203,609,234 $228,829,064
============ ============
</TABLE>
See Notes to Financial Statements.
9
<PAGE> 10
- --------------------------------------------------------------------------------
BOULDER TOTAL RETURN FUND, INC.
FINANCIAL HIGHLIGHTS
FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH YEAR.
- -------------------------------------------------------------------
Contained below is per share operating performance data, total investment
returns, ratios to average net assets and other supplemental data. On August 27,
1999 the Fund changed its objective from income to total return. This
information has been derived from information provided in the financial
statements and market price data for the Fund's shares.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
--------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of year.......................... $ 16.06 $ 16.33 $ 15.31 $ 14.54 $ 12.22
-------- -------- -------- -------- --------
Net investment income....................................... 1.29 1.33 1.36 1.41 1.39
Net realized and unrealized gain/(loss) on investments...... (1.93) 0.13 1.10 0.72 2.46
-------- -------- -------- -------- --------
Total from investment operations............................ (0.64) 1.46 2.46 2.13 3.85
-------- -------- -------- -------- --------
DISTRIBUTIONS:
Dividends paid from net investment income to MMP*
Shareholders.............................................. (0.35) (0.25) (0.26) (0.34) (0.36)
Distributions paid from net realized capital gains to MMP*
Shareholders.............................................. (0.03) (0.14) (0.06) (0.02) --
Dividends paid from net investment income to Common
Shareholders.............................................. (1.02) (1.07) (1.05) (1.02) (1.15)
Distributions paid from net realized capital gains to Common
Shareholders.............................................. (0.64) (0.29) (0.05) -- --
Change in accumulated undeclared dividends on MMP*.......... (0.06)+ 0.02 (0.02) 0.02 (0.02)
-------- -------- -------- -------- --------
Total distributions......................................... (2.10) (1.73) (1.44) (1.36) (1.53)
-------- -------- -------- -------- --------
Net asset value, end of year................................ $ 13.32+ $ 16.06 $ 16.33 $ 15.31 $ 14.54
======== ======== ======== ======== ========
Market value, end of year................................... $10.1875 $ 13.625 $ 15.625 $ 14.625 $ 13.125
======== ======== ======== ======== ========
Total investment return based on net asset value**.......... (5.17)% 7.65% 14.66% 13.89% 30.38%
======== ======== ======== ======== ========
Total investment return based on market value**............. (14.51)% (4.55)% 14.84% 20.50% 29.28%
======== ======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS AVAILABLE TO COMMON STOCK
SHAREHOLDERS
Operating expenses...................................... 1.97% 1.83% 1.60% 1.84% 1.89%
Net investment income***................................ 6.08% 5.92% 6.51% 7.44% 7.81%
SUPPLEMENTAL DATA:
Portfolio turnover rate................................. 69% 86% 77% 98% 93%
Net assets, end of year (in 000's)...................... $203,609 $228,829 $231,572 $221,840 $212,827
- ------------------------------------------------------------
Ratio of operating expenses to Total Average Net Assets
including MMP*............................................ 1.26% 1.22% 1.05% 1.17% 1.16%
</TABLE>
* Money Market Cumulative Preferred(TM) Stock.
** Assumes reinvestment of distributions at the price obtained by the Fund's
Dividend Reinvestment Plan.
*** The net investment income ratios reflect income net of operating expenses
and payments to MMP* Shareholders.
+ Includes effect of additional distribution available to MMP* Shareholders
($0.04 per Common share) (see Notes 5 and 10 to the Financial Statements).
See Notes to Financial Statements.
10
<PAGE> 11
- --------------------------------------------------------------------------------
BOULDER TOTAL RETURN FUND, INC.
FINANCIAL HIGHLIGHTS (CONTINUED)
------------------------------------------------------
The table below sets out information with respect to Money Market
Cumulative Preferred(TM) Stock currently outstanding(2).
<TABLE>
<CAPTION>
INVOLUNTARY AVERAGE
ASSET LIQUIDATING MARKET
TOTAL SHARES COVERAGE PREFERENCE VALUE
OUTSTANDING PER SHARE PER SHARE(1) PER SHARE(1)
------------ --------- ------------ ------------------
<S> <C> <C> <C> <C>
11/30/99 775 $262,722 $100,000 $100,000
11/30/98 775 295,263 100,000 100,000
11/30/97 775 298,802 100,000 100,000
11/30/96 775 286,246 100,000 100,000
11/30/95 775 277,196 100,000 100,000
</TABLE>
- ---------------
(1) Excludes accumulated undeclared dividends.
(2) See Note 5.
See Notes to Financial Statements.
11
<PAGE> 12
- --------------------------------------------------------------------------------
BOULDER TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Boulder Total Return Fund, Inc. (the "Fund") (prior to August 27, 1999,
Preferred Income Management Fund, Inc.) is a diversified, closed-end management
investment company organized as a Maryland corporation and is registered with
the Securities and Exchange Commission ("SEC") under the Investment Company Act
of 1940, as amended. The policies described below are followed consistently by
the Fund in the preparation of its financial statements in conformity with
generally accepted accounting principles.
Portfolio valuation: The net asset value of the Fund's Common Stock is
determined by the Fund's administrator no less frequently than on the last
business day of each week and month. It is determined by dividing the value of
the Fund's net assets attributable to common shares by the number of shares of
Common Stock outstanding. The value of the Fund's net assets attributable to
common shares is deemed to equal the value of the Fund's total assets less (i)
the Fund's liabilities, (ii) the aggregate liquidation value of the outstanding
Money Market Cumulative Preferred(TM) Stock and (iii) accumulated and unpaid
dividends on the outstanding Money Market Cumulative Preferred(TM) Stock.
Securities listed on a national securities exchange are valued on the basis of
the last sale on such exchange on the day of valuation. In the absence of sales
of listed securities and with respect to securities for which the most recent
sale prices are not deemed to represent fair market value and unlisted
securities (other than money market instruments), securities are valued at the
mean between the closing bid and asked prices when quoted prices for investments
are readily available. Investments for which market quotations are not readily
available are valued at fair value as determined in good faith by or under the
direction of the Board of Directors of the Fund, including reference to
valuations of other securities which are considered comparable in quality,
maturity and type. Investments in money market instruments, which mature in 60
days or less, are valued at amortized cost.
Securities transactions and investment income: Securities transactions are
recorded as of the trade date. Realized gains and losses from securities sold
are recorded on the identified cost basis. Dividend income is recorded on ex-
dividend dates. Interest income is recorded on the accrual basis.
Option accounting principles: Upon the purchase of a put option by the
Fund, the total purchase price paid is recorded as an investment. The market
valuation is determined as set forth in the second preceding paragraph. When the
Fund enters into a closing sale transaction, the Fund will record a gain or loss
depending on the difference between the purchase and sale price. The risks
associated with purchasing options and the maximum loss the Fund would incur are
limited to the purchase price originally paid.
Repurchase Agreements: The Fund may engage in repurchase agreement
transactions. The Fund's Board of Directors reviews and approves periodically
the eligibility of the banks and dealers with which the Fund enters into
repurchase agreement transactions. The value of the collateral underlying such
transactions is at least equal at all times to the total amount of the
repurchase obligations, including interest. The Fund maintains possession of the
collateral and, in the event of counterparty default, the Fund has the right to
use the collateral to offset losses incurred. There is the possibility of loss
to the Fund in the event the Fund is delayed or prevented from exercising its
rights to dispose of the collateral securities.
Dividends and distributions to shareholders: Beginning in March of 2000,
the Fund expects to declare dividends on a quarterly rather than monthly basis
to shareholders of Common Stock. The shareholders of Money Market Cumulative
Preferred(TM) Stock are entitled to receive cumulative cash dividends as
declared by the Fund's Board of Directors. Distributions to shareholders are
recorded on the ex-dividend date. Any net realized short-term capital gains will
be distributed to shareholders at least annually. Any net realized long-term
capital gains may be distributed to shareholders at least annually or may be
retained by the Fund as determined by the Fund's Board of Directors. Capital
gains retained by the Fund are subject to tax at the corporate tax rate. Subject
to the Fund qualifying as a regulated investment company, any taxes paid by the
Fund on such net realized long-term gains may be used by the Fund's Shareholders
as a credit against their own tax liabilities.
Federal income taxes: The Fund intends to qualify as a regulated
investment company by complying with the requirements under subchapter M of the
Internal Revenue Code of 1986, as amended, applicable to regulated investment
companies and intends to distribute substantially all of its taxable net
investment income to its shareholders. Therefore, no Federal income tax
provision is required.
12
<PAGE> 13
- --------------------------------------------------------------------------------
BOULDER TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-------------------------------------------------------------------------
Income and capital gain distributions are determined and characterized in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to (1) differing
treatments of income and gains on various investment securities held by the
Fund, including timing differences, (2) the attribution of expenses against
certain components of taxable investment income, and (3) federal regulations
requiring proportional allocation of income and gains to all classes of
Shareholders.
The Internal Revenue Code of 1986, as amended, imposes a 4% nondeductible
excise tax on the Fund to the extent the Fund does not distribute by the end of
any calendar year at least (1) 98% of the sum of its net investment income for
that year and its capital gains (both long term and short term) for its fiscal
year and (2) certain undistributed amounts from previous years.
Other: The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
2. INVESTMENT ADVISORY FEE, SUB-ADVISORY FEES, CO-ADMINISTRATION FEES,
DIRECTORS' FEES, ECONOMIC CONSULTING FEE, ADMINISTRATION FEE AND TRANSFER
AGENT FEE
Prior to the close of business on June 30, 1999, Flaherty & Crumrine
Incorporated served as the Fund's Investment Adviser. The Fund paid Flaherty &
Crumrine Incorporated a monthly fee at an annual rate as follows:
<TABLE>
<CAPTION>
FEES ON
NET ASSETS
EQUAL TO
OR LESS THAN FEES ON NET ASSETS
$100 MILLION EXCEEDING $100 MILLION
------------ ----------------------
<S> <C> <C>
12/01/98 to 01/31/99........................................ .675% .550%
02/01/99 to 06/30/99........................................ .580% .500%
</TABLE>
Effective at the close of business on June 30, 1999, Spectrum Asset
Management, Inc. ("Spectrum") served as the Fund's interim Investment Adviser.
From such date until August 27, 1999, the Fund paid Spectrum a monthly fee at an
annual rate of 0.45% of the first $50 million of the Fund's average monthly net
assets and 0.40% on amounts in excess of $50 million.
Effective August 27, 1999, Boulder Investment Advisers, L.L.C. (the
"Adviser") serves as the Fund's Investment Adviser. The Fund pays the Adviser a
monthly fee at an annual rate of 1.00% of the value of the Fund's average
monthly net assets, out of which the Adviser is responsible for compensating the
Fund's sub-adviser. The Adviser has contractually agreed that until the Fund has
invested at least 50% of its assets in common stocks and cash equivalents held
for investment in common stocks, the Adviser will waive 40% of the 1.00% fee on
the portion of the Fund's assets invested in preferreds and cash equivalents
held for investment in preferreds.
Effective August 27, 1999, Spectrum serves as the Fund's sub-adviser with
respect to the Fund's preferred stock portfolio, related hedging instruments and
cash and cash equivalents held for investment in such securities (the "Preferred
Portfolio"). The Adviser pays Spectrum a monthly fee at an annual rate of 0.45%
of the average monthly net assets of the Preferred Portfolio up to $50 million
and 0.40% of the average monthly net assets of the Preferred Portfolio in excess
of $50 million. The term Preferred Portfolio includes all assets invested in
preferred securities (including so-called "hybrid" or taxable preferred
securities, including those such as capital securities that have certain
characteristics of debt securities).
Effective August 27, 1999, Stewart West Indies Trading Company, Ltd., a
Barbados international business company doing business as Stewart Investment
Advisers ("Stewart Advisers"), serves as sub-adviser for the portion of the
Fund's assets invested in common stocks and cash equivalents held for investment
in common stocks. The Adviser pays Stewart Advisers a monthly fee equal to 80%
of the advisory fees retained by the Adviser after deducting fees paid to
Spectrum as described above, pursuant to the Investment Advisory Agreement.
Boulder Administrative Services LLC ("BAS") serves as the Fund's
Co-Administrator. On March 22, 1999, the Fund entered into a co-administration
agreement with BAS (the "Co-Administration Agreement"). Under the Co-
Administration Agreement, BAS provides certain administrative and executive
management services to the Fund including: providing the Fund's principal
offices and executive officers, overseeing and administering all contracted
service providers, making recommendations to the Board regarding policies of the
Fund, conducting shareholder
13
<PAGE> 14
- --------------------------------------------------------------------------------
BOULDER TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------
relations, authorizing expenses and numerous other tasks. Under the
Co-Administration Agreement, the Fund pays BAS a monthly fee, calculated at an
annual rate of 0.10% of the value of the Fund's average monthly net assets.
The Fund currently pays each Director who is not a director, officer or
employee of the Adviser, Stewart Advisers or BAS a fee of $6,000 per annum, plus
$2,000 for each in-person meeting of the Board of Directors and $1,000 for each
telephone meeting. In addition, the Fund reimburses all Directors for travel and
out-of-pocket expenses incurred in connection with such meetings.
Prior to the close of business on August 3, 1999, Primark Decision
Economics Inc. ("Primark") served as the Fund's Economic Consultant. The Fund
paid Primark an annual fee equal to $45,333 for services provided. The Primark
consulting engagement was terminated on August 3, 1999.
First Data Investor Services Group, Inc. ("Investor Services Group"), a
wholly owned subsidiary of First Data Corporation, serves as the Fund's
Administrator and Transfer Agent. As Administrator, Investor Services Group
calculates the net asset value of the Fund's shares and generally assists in all
aspects of the Fund's administration and operation. As compensation for Investor
Services Group's services as Administrator, the Fund pays Investor Services
Group a monthly fee at an annual rate of 0.12% of the Fund's average monthly net
assets. Boston Safe Deposit and Trust Company ("Boston Safe"), a wholly owned
subsidiary of Mellon Bank Corporation, serves as the Fund's Custodian. As
compensation for Boston Safe's services as Custodian, the Fund pays Boston Safe
a monthly fee at an annual rate of 0.01% of the Fund's average monthly net
assets plus certain out of pocket expenses. Investor Services Group also serves
as the Fund's Common Stock servicing agent (transfer agent), dividend-paying
agent and registrar, and as compensation for Investor Services Group's services
as transfer agent, the Fund pays Investor Services Group a fee at an annual rate
of 0.02% of the Fund's average monthly net assets plus certain out-of-pocket
expenses.
Deutsche Bank ("Auction Agent") serves as the Fund's Money Market
Cumulative Preferred(TM) Stock transfer agent, registrar, dividend disbursing
agent and redemption agent (Note 10).
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities for the year ended
November 30, 1999, excluding short-term investments, aggregated $139,093,786 and
$169,196,115, respectively.
At November 30, 1999, aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was $3,728,618 and
aggregate gross unrealized depreciation for all securities in which there is an
excess of tax cost over value was $7,339,224.
4. COMMON STOCK
At November 30, 1999, 240,000,000 shares of $0.01 par value Common Stock
were authorized. There were no Common Stock transactions for the years ended
November 30, 1999 and 1998.
5. MONEY MARKET CUMULATIVE PREFERRED(TM) STOCK
The Fund's Articles of Incorporation authorize the issuance of up to
10,000,000 shares of $0.01 par value preferred stock. On April 30, 1993, the
Fund received proceeds from the public offering of 775 shares of Money Market
Cumulative Preferred(TM) Stock of $77,500,000 before offering costs of $171,219
and underwriting discounts and commissions paid directly to Lehman Brothers Inc.
of $1,356,250. The Money Market Cumulative Preferred(TM) Stock is senior to the
Common Stock and results in the financial leveraging of the Common Stock. Such
leveraging tends to magnify both the risks and opportunities to Common Stock
Shareholders. Dividends on shares of Money Market Cumulative Preferred(TM) Stock
are cumulative.
The Fund is required to meet certain asset coverage tests with respect to
the Money Market Cumulative Preferred(TM) Stock. If the Fund fails to meet these
requirements and does not correct such failure, the Fund may be required to
redeem, in part or in full, Money Market Cumulative Preferred(TM) Stock at a
redemption price of $100,000 per share plus an amount equal to the accumulated
and unpaid dividends on such shares in order to meet these requirements.
Additionally, failure to meet the foregoing asset requirements could restrict
the Fund's ability to pay dividends to Common Stock Shareholders and could lead
to sales of portfolio securities at inopportune times.
If the Fund allocates any net gains or income ineligible for the Dividends
Received Deduction to shares of the Money Market Cumulative Preferred(TM) Stock,
the Fund is required to make additional distributions to Money Market
14
<PAGE> 15
- --------------------------------------------------------------------------------
BOULDER TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-------------------------------------------------------------------------
Cumulative Preferred(TM) Stock Shareholders or to pay a higher dividend rate in
amounts needed to provide a return, net of tax, equal to the return had such
originally paid distributions been eligible for the Dividends Received
Deduction.
An auction of the Money Market Cumulative Preferred(TM) Stock is generally
held every 49 days. Existing shareholders may submit an order to hold, bid or
sell such shares at par value on each auction date. Money Market Cumulative
Preferred(TM) Stock Shareholders may also trade shares in the secondary market
between auction dates.
At November 30, 1999, 775 shares of Money Market Cumulative Preferred(TM)
Stock were outstanding at the annual rate of 4.359%. The dividend rate, as set
by the auction process, is generally expected to vary with short-term interest
rates. These rates may vary in a manner unrelated to the income received on the
Fund's assets, which could have either a beneficial or detrimental impact on net
investment income and gains available to Common Stock Shareholders. While the
Fund expects to structure the portfolio holdings and hedging transactions to
lessen such risks to Common Stock Shareholders, there can be no assurance that
such results will be attained.
6. PORTFOLIO INVESTMENTS, CONCENTRATION AND INVESTMENT QUALITY
On August 27, 1999, the Fund changed its investment objective from high
current income consistent with preservation of capital to total return. The
"total return" objective necessitated a number of other changes including the
following:
- The requirement to invest at least 65% of the Fund's assets in preferred
stocks was replaced with a requirement to invest at least 80% of the
Fund's assets in common, preferred and fixed income securities, except
during defensive periods.
- The 15% limit on common stock investments was deleted.
- The Fund was permitted to invest in common stocks of U.S. or non-U.S.
issuers of any size and was permitted to invest up to 10% of its net
assets in real estate investment trusts.
- The Fund was permitted to invest without limit in non-dividend paying
equity securities.
- The Fund was permitted to invest up to 10% of its assets in other
registered investment companies.
- The restriction on borrowing was relaxed to permit borrowing for the
purpose of redeeming all of the outstanding MMP.
- The restriction regarding issuance of senior securities was relaxed to
permit issuance of debt as well as preferred stock consistent with its
restriction on borrowing described above.
- The policy regarding concentrating in the banking and utilities
industries was removed.
- The policy prohibiting the Fund from making investments for the purpose
of exercising control or management was removed.
The Fund's other investment policies were generally left unchanged,
including, without limitation, the Fund's authority to invest in futures and
options, restricted securities, short sales against the box and zero coupon
securities. A substantial portion of the Fund's assets are invested in
adjustable and fixed rate preferred stocks and similar hybrid securities and
therefore the Fund's portfolio may be subject to greater risk and market
fluctuation than a portfolio of securities representing a broader range of
investment alternatives. The Fund may invest up to 15% of its assets at the time
of purchase in securities rated below investment grade, provided that no such
investment may be rated below both "Ba" by Moody's Investors Service, Inc. and
"BB" by Standard & Poor's Rating Group or judged to be comparable in quality at
the time of purchase; however, any such securities must be issued by an issuer
having an outstanding class of senior debt rated investment grade.
7. SPECIAL INVESTMENT TECHNIQUES
The Fund may employ certain investment techniques in accordance with its
fundamental investment policies. These may include the use of when-issued and
delayed delivery transactions. Securities purchased or sold on a when-issued or
delayed delivery basis may be settled within 45 days after the date of the
transaction. Such transactions may expose the Fund to credit and market
valuation risk greater than that associated with regular trade settlement
procedures. The Fund may also enter into transactions, in accordance with its
fundamental investment policies, involving any or all of the following: lending
of portfolio securities, short sales of securities, futures contracts, options
on futures contracts, and
15
<PAGE> 16
- --------------------------------------------------------------------------------
BOULDER TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------
options on securities. With the exception of purchasing securities on a
when-issued or delayed delivery basis or lending portfolio securities, these
transactions are used for hedging or other appropriate risk-management purposes
or, under certain other circumstances, to increase income. As of November 30,
1999, the Fund owned put options on U.S. Treasury Bond futures contracts. No
assurance can be given that such transactions will achieve their desired
purposes or will result in an overall reduction of risk to the Fund.
8. SIGNIFICANT SHAREHOLDERS
At November 30, 1999 various Horejsi family trusts and related controlled
operating companies owned 3,945,550 shares of Common Stock of the Fund,
representing approximately 42% of the total Fund shares. These trusts and
operating companies effectively control the Adviser, Stewart Advisers and BAS.
9. CAPITAL LOSS CARRYFORWARDS
As of November 30, 1999, the Fund had available for Federal income tax
purposes unused capital losses of $111,586 which expires in 2007.
10. SUBSEQUENT EVENTS
On December 1, 1999, PFPC Trust Company, a wholly-owned subsidiary of PFPC
Worldwide, Inc. and an indirect wholly-owned subsidiary of PNC Bank Corporation,
acquired all of the outstanding stock of Investor Services Group (the
"Transaction"). On that same date and as part of the Transaction, PFPC Inc., an
indirect wholly-owned subsidiary of PNC Bank Corporation, was merged into
Investor Services Group, which then changed its name to PFPC Inc.
Bankers Trust Company, a wholly-owned subsidiary of Deutsche Bank, AG
("Auction Agent"), began serving as the Fund's Money Market Cumulative
Preferred(TM) Stock transfer agent, registrar, dividend disbursing agent and
redemption agent, effective December 1, 1999.
A portion of the distributions paid to the Fund's Money Market Cumulative
Preferred(TM) Stock Shareholders from January 1, 1999 through November 30, 1999
has been designated as not qualifying for the Dividends Received Deduction.
Therefore, on December 27, 1999, the Fund declared an additional distribution of
$375,069 payable December 29, 1999 to Money Market Cumulative Preferred(TM)
Stock Shareholders as required by the Fund's Articles Supplementary. This
additional distribution has been reflected in "Accumulated undeclared dividends
on Money Market Cumulative Preferred(TM) Stock" in the Statement of Assets and
Liabilities at November 30, 1999. This additional distribution is required to
reflect the fact that the original distributions did not qualify 100% for the
corporate Dividends Received Deduction.
16
<PAGE> 17
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of Boulder Total Return Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Boulder Total Return Fund, Inc.
(the "Fund") (formerly Preferred Income Management Fund, Inc.) at November 30,
1999, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended and the financial
highlights for each of the five years in the period then ended, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at November 30, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
January 11, 2000
17
<PAGE> 18
- --------------------------------------------------------------------------------
BOULDER TOTAL RETURN FUND, INC.
TAX INFORMATION (UNAUDITED)
----------------------------------------------
Of the total distributions attributable to the fiscal year ended November
30, 1999, including the Additional Distribution to Money Market Cumulative
Preferred(TM)Stock Shareholders, 58.05% qualified for the Dividends Received
Deduction for eligible corporate investors. (See Note 10).
For the calendar year ended December 31, 1999, 56.79% of all distributions
paid to Common Stock Shareholders qualifies for the Dividends Received Deduction
for eligible corporate investors. Shareholders should refer to Form 1099
accompanying additional information and the information contained herein when
preparing their tax returns to determine the appropriate tax characterization of
the distributions they received from the Fund in calendar year 1999.
18
<PAGE> 19
- --------------------------------------------------------------------------------
BOULDER TOTAL RETURN FUND, INC.
ADDITIONAL INFORMATION (UNAUDITED)
- -----------------------------------------------------------
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Under the Fund's Dividend Reinvestment and Cash Purchase Plan (the "Plan"),
a shareholder whose Common Stock is registered in his own name will have all
distributions reinvested automatically by PFPC Inc. ("PFPC") as agent under the
Plan, unless the shareholder elects to receive cash. Distributions with respect
to shares registered in the name of a broker-dealer or other nominee (that is,
in "street name") may be reinvested by the broker or nominee in additional
shares under the Plan, but only if the service is provided by the broker or
nominee, unless the shareholder elects to receive distributions in cash. A
shareholder who holds Common Stock registered in the name of a broker or other
nominee may not be able to transfer the Common Stock to another broker or
nominee and continue to participate in the Plan. Investors who own Common Stock
registered in street name should consult their broker or nominee for details
regarding reinvestment.
The number of shares of Common Stock distributed to participants in the
Plan in lieu of a cash dividend is determined in the following manner. Whenever
the market price per share of the Fund's Common Stock is equal to or exceeds the
net asset value per share on the valuation date, participants in the Plan will
be issued new shares valued at the higher of net asset value or 95% of the then
current market value. Otherwise, PFPC will buy shares of the Fund's Common Stock
in the open market, on the New York Stock Exchange or elsewhere, on or shortly
after the payment date of the dividend or distribution and continuing until the
ex-dividend date of the Fund's next distribution to holders of the Common Stock
or until it has expended for such purchases all of the cash that would otherwise
be payable to the participants. The number of purchased shares that will then be
credited to the participants' accounts will be based on the average per share
purchase price of the shares so purchased, including brokerage commissions. If
PFPC commences purchases in the open market and the then current market price of
the shares (plus any estimated brokerage commissions) subsequently exceeds their
net asset value most recently determined before the completion of the purchases,
PFPC will attempt to terminate purchases in the open market and cause the Fund
to issue the remaining dividend or distribution in shares. In this case, the
number of shares received by the participant will be based on the weighted
average of prices paid for shares purchased in the open market and the price at
which the Fund issues the remaining shares. These remaining shares will be
issued by the Fund at the higher of net asset value or 95% of the then current
market value.
Plan participants are not subject to any charge for reinvesting dividends
or capital gains distributions. Each Plan participant will, however, bear a
proportionate share of brokerage commissions incurred with respect to PFPC's
open market purchases in connection with the reinvestment of dividends or
capital gains distributions. For the year ended November 30, 1999, $5,439 in
brokerage commissions were incurred.
The automatic reinvestment of dividends and capital gains distributions
will not relieve Plan participants of any income tax that may be payable on the
dividends or capital gains distributions. A participant in the Plan will be
treated for Federal income tax purposes as having received, on the dividend
payment date, a dividend or distribution in an amount equal to the cash that the
participant could have received instead of shares.
In addition to acquiring shares of Common Stock through the reinvestment of
cash dividends and distributions, a shareholder may invest any further amounts
from $100 to $3,000 semi-annually at the then current market price in shares
purchased through the Plan. Such semi-annual investments are subject to any
brokerage commission charges incurred.
A shareholder whose Common Stock is registered in his or her own name may
terminate participation in the Plan at any time by notifying PFPC in writing, by
completing the form on the back of the Plan account statement and forwarding it
to PFPC or by calling PFPC directly. A termination will be effective immediately
if notice is received by PFPC not less than 10 days before any dividend or
distribution record date. Otherwise, the termination will be effective, and only
with respect to any subsequent dividends or distributions, on the first day
after the dividend or distribution has been credited to the participant's
account in additional shares of the Fund. Upon termination and according to a
participant's instructions, PFPC will either (a) issue certificates for the
whole shares credited to the shareholder's Plan account and a check representing
any fractional shares or (b) sell the shares in the market. Shareholders who
hold common stock registered in the name of a broker or other nominee should
consult their broker or nominee to terminate participation.
Information concerning the Plan may be obtained from PFPC at
1-800-331-1710.
19
<PAGE> 20
- --------------------------------------------------------------------------------
BOULDER TOTAL RETURN FUND, INC.
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------
MEETING OF SHAREHOLDERS VOTING RESULTS
A special meeting of shareholders of Boulder Total Return Fund, Inc.
(formerly, "Preferred Income Management Fund Incorporated") was held on August
27, 1999. The results of the votes taken among shareholders on proposals before
them are reported below.
PROPOSAL 1 (COMMON STOCK AND MMP* VOTING TOGETHER AS A SINGLE CLASS)
To approve an investment advisory agreement between the Fund and Boulder
Investment Advisers, L.L.C.
<TABLE>
<CAPTION>
# OF COMBINED VOTES CAST % OF COMBINED VOTES CAST
------------------------ ------------------------
<S> <C> <C>
Affirmative........................................... 5,867,344 91
Against............................................... 466,747 7
Abstain............................................... 119,749 2
--------- ---
TOTAL......................................... 6,433,840 100
========= ===
</TABLE>
PROPOSAL 2 (COMMON STOCK AND MMP* VOTING TOGETHER AS A SINGLE CLASS)
To approve a sub-investment advisory agreement among BIA, the Fund and
Stewart Investment Advisers, Ltd.
<TABLE>
<CAPTION>
# OF COMBINED VOTES CAST % OF COMBINED VOTES CAST
------------------------ ------------------------
<S> <C> <C>
Affirmative........................................... 5,866,222 91
Against............................................... 464,821 7
Abstain............................................... 111,798 2
--------- ---
TOTAL......................................... 6,442,841 100
========= ===
</TABLE>
PROPOSAL 3 (COMMON STOCK AND MMP* VOTING TOGETHER AS A SINGLE CLASS)
To approve a sub-investment advisory agreement among BIA, the Fund and
Spectrum Asset Management, Inc.
<TABLE>
<CAPTION>
# OF COMBINED VOTES CAST % OF COMBINED VOTES CAST
------------------------ ------------------------
<S> <C> <C>
Affirmative........................................... 5,885,412 91
Against............................................... 427,010 7
Abstain............................................... 121,419 2
--------- ---
TOTAL......................................... 6,433,841 100
========= ===
</TABLE>
PROPOSAL 4 (COMMON STOCK AND MMP* VOTING TOGETHER AS A SINGLE CLASS AND MMP*
VOTING AS A SEPARATE CLASS)
To approve a change of the Fund's investment objective to total return,
including a related amendment to the Articles of Incorporation of the Fund to
change its name to Boulder Total Return Fund, Inc.
<TABLE>
<CAPTION>
# OF COMBINED VOTES CAST % OF COMBINED VOTES CAST
------------------------ ------------------------
<S> <C> <C>
Affirmative........................................... 5,871,343 91
Against............................................... 456,713 7
Abstain............................................... 105,785 2
--------- ---
TOTAL......................................... 6,433,841 100
========= ===
</TABLE>
20
<PAGE> 21
- --------------------------------------------------------------------------------
BOULDER TOTAL RETURN FUND, INC.
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
# OF MMP* VOTES CAST % OF MMP* VOTES CAST
------------------------ ------------------------
<S> <C> <C>
Affirmative........................................... 544 100
Against............................................... 0 0
Abstain............................................... 0 0
--------- ---
TOTAL......................................... 544 100
========= ===
</TABLE>
- ---------------
* Money Market Cumulative Preferred(TM)Stock
PROPOSAL 5 (COMMON STOCK AND MMP* VOTING TOGETHER AS A SINGLE CLASS AND MMP*
VOTING AS A SEPARATE CLASS)
To approve an amendment to the Fund's fundamental investment restriction
regarding borrowing.
<TABLE>
<CAPTION>
# OF COMBINED VOTES CAST % OF COMBINED VOTES CAST
------------------------ ------------------------
<S> <C> <C>
Affirmative........................................... 5,850,832 91
Against............................................... 470,724 7
Abstain............................................... 112,276 2
--------- ---
TOTAL......................................... 6,433,832 100
========= ===
</TABLE>
<TABLE>
<CAPTION>
# OF MMP* VOTES CAST % OF MMP* VOTES CAST
------------------------ ------------------------
<S> <C> <C>
Affirmative........................................... 544 100
Against............................................... 0 0
Abstain............................................... 0 0
--------- ---
TOTAL......................................... 544 100
========= ===
</TABLE>
PROPOSAL 6 (COMMON STOCK AND MMP* VOTING TOGETHER AS A SINGLE CLASS AND MMP*
VOTING AS A SEPARATE CLASS)
To approve an amendment to the Fund's fundamental investment restriction
regarding the issuance of senior securities.
<TABLE>
<CAPTION>
# OF COMBINED VOTES CAST % OF COMBINED VOTES CAST
------------------------ ------------------------
<S> <C> <C>
Affirmative......................................... 5,847,056 91
Against............................................. 474,043 7
Abstain............................................. 112,742 2
--------- ---
TOTAL....................................... 6,433,841 100
========= ===
</TABLE>
<TABLE>
<CAPTION>
# OF MMP* VOTES CAST % OF MMP* VOTES CAST
------------------------ ------------------------
<S> <C> <C>
Affirmative......................................... 544 100
Against............................................. 0 0
Abstain............................................. 0 0
--------- ---
TOTAL....................................... 544 100
========= ===
</TABLE>
21
<PAGE> 22
- --------------------------------------------------------------------------------
BOULDER TOTAL RETURN FUND, INC.
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------------------------
PROPOSAL 7 (COMMON STOCK AND MMP* VOTING TOGETHER AS A SINGLE CLASS AND MMP*
VOTING AS A SEPARATE CLASS)
To approve an amendment to the Fund's fundamental investment restriction
regarding industry concentration.
<TABLE>
<CAPTION>
# OF COMBINED VOTES CAST % OF COMBINED VOTES CAST
------------------------ ------------------------
<S> <C> <C>
Affirmative......................................... 5,906,799 92
Against............................................. 422,303 6
Abstain............................................. 104,739 2
--------- ---
TOTAL....................................... 6,433,841 100
========= ===
</TABLE>
<TABLE>
<CAPTION>
# OF MMP* VOTES CAST % OF MMP* VOTES CAST
------------------------ ------------------------
<S> <C> <C>
Affirmative......................................... 544 100
Against............................................. 0 0
Abstain............................................. 0 0
--------- ---
TOTAL....................................... 544 100
========= ===
</TABLE>
- ---------------
* Money Market Cumulative Preferred(TM)Stock
PROPOSAL 8 (COMMON STOCK AND MMP* VOTING TOGETHER AS A SINGLE CLASS AND MMP*
VOTING AS A SEPARATE CLASS)
To approve the deletion of the Fund's fundamental investment restriction
prohibiting investing for the purpose of control or management of any company.
<TABLE>
<CAPTION>
# OF COMBINED VOTES CAST % OF COMBINED VOTES CAST
------------------------ ------------------------
<S> <C> <C>
Affirmative......................................... 5,861,763 91
Against............................................. 464,948 7
Abstain............................................. 107,130 2
--------- ---
TOTAL....................................... 6,433,841 100
========= ===
</TABLE>
<TABLE>
<CAPTION>
# OF MMP* VOTES CAST % OF MMP* VOTES CAST
------------------------ ------------------------
<S> <C> <C>
Affirmative......................................... 544 100
Against............................................. 0 0
Abstain............................................. 0 0
--------- ---
TOTAL....................................... 544 100
========= ===
</TABLE>
- ---------------
* Money Market Cumulative Preferred(TM) Stock
22
<PAGE> 23
DIRECTORS
Alfred G. Aldridge Jr.
Richard I. Barr
James G. Duff
Stewart R. Horejsi
Stephen C. Miller
OFFICERS
Stephen C. Miller
President
Carl D. Johns
Vice President and Treasurer
Laura C. Rhodenbaugh
Secretary
Stephanie J. Kelley
Assistant Secretary
QUESTIONS CONCERNING YOUR
SHARES OF THE FUND?
If your shares are held in a Brokerage Account contact your broker. If you have
physical possession of your shares in certificate form, contact the Fund's
Transfer Agent & Shareholder Servicing Agent -- PFPC Global Fund Services
P.O. Box 1376
Boston, MA 02104
1-800-331-1710
This report is sent to shareholders of Boulder Total Return Fund, Inc. for their
information. It is not a prospectus, circular or representation intended for use
in the purchase or sale of shares of the Fund or of any securities mentioned in
this report.
