UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-11652
----------------------------
BOULDER TOTAL RETURN FUND INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Fund Administrative Services
1680 38th Street, Suite 800
BOULDER, CO 80301
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(Address of principal executive offices) (Zip code)
Fund Administrative Services
1680 38th Street, Suite 800
BOULDER, CO 80301
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(Name and address of agent for service)
registrant's telephone number, including area code: 303-444-5483
--------------
Date of fiscal year end: NOVEMBER 30, 2003
------------------
Date of reporting period: MAY 31, 2003
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
BOULDER TOTAL RETURN FUND, INC.
Semi-Annual Report
May 31, 2003
Dear Shareholder:
The Boulder Total Return Fund ("BTF") had a total return on net assets of 5.4%
for the 6 months ending 5/31/03. The Fund edged out the S&P 500 Index, which had
a return of 3.8% over the same period. The net asset value ("NAV") of BTF went
up from $15.04 on 11/30/02, the fiscal year end, to $15.82 on 5/31/03.
A 5.4% return was not bad for 6 months. We made money and we beat the S&P 500
Index. But it was a roller coaster ride. We were down 13.2% in the 1st fiscal
quarter, and we came roaring back with a 21.5% return in the 2nd quarter. See
Exhibit 2 for the Fund's quarterly returns over the last year vs. the S&P 500
Index.
The overall market had a terrible first quarter in 2003, and has had a very good
second quarter--so far. The volatility of the market continues to be very high.
The S&P Index was at 936 on 11/29/02. It dropped all the way down to 800 on
March 11, 2003. That's a drop of 14.5%. Then from mid-March to the end of May,
it climbed back from 800 to 963. That's a gain of 20%. That's volatility!! Do we
care about this market volatility? Yes and No.
Yes, we care because the volatility in the overall market means there is
volatility in the individual stocks that make up these indices. And there are a
handful of these individual stocks in which we are interested. If the volatility
causes the price of a good company to go down in sympathy with the rest of the
market, and it's a company that we like, we will take that opportunity and be a
buyer.
On the flip side, no, we don't care. If the volatility causes a market rise, and
happens to take one of the companies we own to a level that is higher than we
bought it, we'll likely say, "so what." Unless the market takes the price of one
of our stocks to a level that is so ridiculously high that it bears no
resemblance to the intrinsic value, we will generally hold onto our investments
over a long period of time, riding the market up and down. We'll never make any
real money flipping hamburgers or stocks, so we won't.
Within BTF's portfolio, some of the better performers (having an impact) during
the 6 months ending 5/31/03 were Providian Financial, up 48%, Alliant Energy up
23%, and YUM Brands up 17%. On the downside, some of the under-performers were
Northwestern, Safeway and Schering-Plough down 67%, 21% and 19%, respectively.
Real Estate Investment Trusts ("REITs"), which make up approximately 25% of the
Fund's assets, were the strongest performing sector in the portfolio. On a
principal basis, not including dividends, REITs were up about 7% in the period.
RIGHTS OFFERING
By the time this report is mailed, the subscription period for the rights
offering will be over. The rights offering gave shareholders the opportunity to
buy one new share of the Fund for every three shares that were owned as of the
record date, at a 5% discount to the market price. If all the rights are
exercised, the Fund is expected to raise approximately $40 million ($16 million
of which will come from the Horejsi family trusts). This will have a positive
impact on the Fund in several different ways. First, it has an impact on the
Fund's leverage. As a percent of total net assets, the $77.5 million of the
Fund's Auction Market Preferreds ("AMPs") will represent about 28% of these
assets, vs. 33.4% prior to the rights offering. Thus, it will have the effect of
de-leveraging the Fund. The increase in equity will give us more `asset
coverage' on our AMPs, which is required for maintaining our `Aa/AA' ratings
from Moody's and Standard & Poor's, respectively. Second, it will give us
additional cash we can use to invest in new investment opportunities that we
find. Third, it should have the desired effect of modestly lowering the expense
ratio of the Fund.
INTEREST RATES
Interest rates are at historical lows. The 10-year US Treasury Note is currently
yielding 3.36%, and a 3 year is yielding 1.54%. Anything under a year is below
1%. We haven't seen rates this low since the administration of Dwight D.
Eisenhower back in 1958. Now this may all change. No doubt it will. But nobody
knows when, or how quickly, or even in which direction. Capital has become
cheap, and the demand for money, which drives interest rates, has dwindled. When
the market declined in 2000, 2001, and 2002, people (including pension fund
managers and corporate treasurers) figured out that earning 2 or 3% on their
money is far better than losing 30 or 40% in the market. But as history tells
us, their memories will fade.
For many corporations, these low interest rates are providing a very good
financing source. Done properly, this financing rewards shareholders of those
corporations over a long period.
BTF shareholders are getting great benefits from these low rates through our
Auction Market Preferreds ("AMPs"). Our last AMPs auction came in at 1.24%. We
have to pay a little bit higher rate than the US Government gets on their short
term T-Bills, but not by much.
Our website at WWW.BOULDERFUNDS.NET is an excellent source for information on
the Fund. If you've lost your annual report, or want to read an old one, it's
there on the site. You will also see on the website information about the
Boulder Total Return's sister Fund - the Boulder Growth & Income Fund.
/S/ SIGNATURE
Stewart R. Horejsi
June 19, 2003
-----------------
NOTHING IN THIS SEMI-ANNUAL REPORT SHOULD BE CONSIDERED AS INVESTMENT ADVICE.
THIS LETTER EXPLAINS THE MANAGERS' VIEWS AS OF ITS DATE, WHICH MAY HAVE
SUBSEQUENTLY CHANGED.
2
BOULDER TOTAL RETURN FUND, INC.
EXHIBIT 1
(UNAUDITED)
NET ASSET VALUE AND MARKET PERFORMANCE FOR A COMMON SHARE
FOR THE SIX MONTHS ENDING 5/31/03
NAV MARKET
------ ------
November 30, 2002.............................................. $15.04 $12.79
May 31, 2003................................................... $15.82 $14.00
------ ------
Change...................................................... $ 0.78 $ 1.21
Dividends Paid................................................. $ 0.03 $ 0.03
------ ------
Net Increase in Value.......................................... $ 0.81 $ 1.24
Net Increase % (No Dividend Reinvestment)...................... 5.4% 9.7%
EXHIBIT 2
(UNAUDITED)
BTF TOTAL RETURNS FOR QTRS. AND SIX MONTHS ENDING 5/31/03 VS. S&P 500
DIVIDENDS REINVESTED ON DIVIDEND PAY DATE
BTF BTF
NAV MARKET S&P 500
------ ------- -------
Quarter Ending 5/31/03..................................................... 21.5% 23.2% 15.1%
Quarter Ending 2/28/03..................................................... -13.2% -11.0% -9.7%
Quarter Ending 11/30/02.................................................... -7.7% -11.4% 2.7%
Quarter Ending 8/31/02..................................................... -18.2% -21.2% -13.8%
------ ------- -------
Trailing 12 Months Ending 5/31/03.......................................... -20.4% -23.4% -8.1%
3
BOULDER TOTAL RETURN FUND, INC.
EXHIBIT 3
(UNAUDITED)
CHANGE IN PRINCIPAL VALUE OF ASSET CLASSES 11/30/2002 TO 05/31/2003
COMMON STOCK INVESTMENTS
--------------------------------------------------------------------
RICS REITS INDUSTRIALS TOTAL
---- ----- -----------
Beginning Market Value............... 11/30/02 $ 252,105 $56,812,724 $140,832,783 $197,897,612
--------------- ----------- ------------ ------------
Cost of Purchases.................... 12/1/02-5/31/03 -- -- -- --
Proceeds from Sales.................. 12/1/02-5/31/03 255,119 3,525,379 2,897,968 6,678,466
--------------- ----------- ------------ ------------
Net Purchase/(Sales)................. (255,119) (3,525,379) (2,897,968) (6,678,466)
Beginning Market Value Plus
Net Purchases/(Sales)............. (3,014) 52,287,345 137,934,815 191,219,146
Net Appreciation..................... 3,014 3,853,552 2,850,750 6,707,316
--------------- ----------- ------------ ------------
Ending Market Value.................. 5/31/03 -- $57,140,897 $140,785,565 $197,926,462
Number of Issues Held................ 5/31/03 -- 8 16
Cash and Other Assets &
Liabilities....................... 5/31/03 28,499,329
------------
Total Net Assets.................. $226,425,791
============
The information in the table below is unaudited.
FINANCIAL DATA
PER SHARE OF
COMMON STOCK
-----------------------
NET ASSET NYSE
VALUE CLOSING PRICE
------- -------------
12/31/02 ............................ $14.91 $12.40
1/31/03 ............................ 14.05 11.95
2/28/03 ............................ 13.02 11.36
3/31/03 ............................ 13.52 12.00
4/30/03 ............................ 14.76 12.87
5/31/03 ............................ 15.82 14.00
4
BOULDER TOTAL RETURN FUND, INC. PORTFOLIO OF INVESTMENTS
MAY 31, 2003 (UNAUDITED)
--------------------------------------------------------------------------------
SHARES VALUE
------ -------
DOMESTIC COMMON STOCKS - 87.4%
DIVERSIFIED - 33.0% Berkshire Hathaway Inc., Class A+ .................... 750 $ 53,250,000
Berkshire Hathaway Inc., Class B+ .................... 9,010 21,389,740
--------------
TOTAL DIVERSIFIED 74,639,740
--------------
FINANCIAL SERVICES - 8.3% Citigroup, Inc. ...................................... 293,360 12,033,627
MBIA Inc. ............................................ 5,000 250,250
MGIC Investment Corporation .......................... 5,000 270,100
Providian Financial Corporation+ ..................... 698,000 6,309,920
--------------
TOTAL FINANCIAL SERVICES 18,863,897
--------------
INSURANCE - 1.2% Wesco Financial Corporation .......................... 9,000 2,727,000
--------------
MEDICAL-DRUG/
DIVERSIFIED - 4.7% Bristol-Meyers Squibb Company ........................ 125,000 3,200,000
Merck & Company, Inc. ................................ 75,000 4,168,500
Schering-Plough Corporation .......................... 178,000 3,284,100
--------------
TOTAL MEDICAL-DRUG/DIVERSIFIED 10,652,600
--------------
REITS - 25.2% Boykin Lodging Company ............................... 300,000 2,421,000
Developers Diversified Realty Corporation ............ 194,301 5,485,117
First Industrial Realty Trust Inc. ................... 400,000 12,056,000
Hospitality Property Trust ........................... 400,000 12,636,000
HRPT Properties Trust ................................ 1,300,000 12,337,000
Pennsylvania Real Estate Investment Trust ............ 100,000 2,822,000
Post Properties, Inc. ................................ 320,000 8,566,400
Thornburg Mortgage, Inc. ............................. 34,200 817,380
--------------
TOTAL REITS 57,140,897
--------------
RETAIL-RESTAURANTS - 7.3% Yum! Brands Inc.+ .................................... 590,000 16,496,400
--------------
RETAIL-SUPERMARKETS - 2.9% Safeway Inc.+ ........................................ 350,000 6,594,000
--------------
UTILITY - 4.8% Alliant Energy Corporation ........................... 400,000 7,992,000
Aquila Inc.+ ......................................... 757,200 2,097,444
Northwestern Corporation ............................. 156,300 418,884
TXU Corporation ...................................... 15,000 303,600
--------------
TOTAL UTILITY 10,811,928
--------------
TOTAL DOMESTIC COMMON STOCKS
(Cost $172,577,843) ....................................................................... 197,926,462
--------------
PAR
-----
U.S. TREASURY BILLS - 11.0%
1.156% due 06/19/03 ++ ............................... $ 10,000,000 9,994,617
1.162% due 06/19/03 ++ ............................... 10,000,000 9,994,275
1.162% due 06/26/03 ++ ............................... 5,000,000 4,996,025
TOTAL U.S. TREASURY BILLS
(Cost $24,984,917) ....................................................................... 24,984,917
---------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
5
BOULDER TOTAL RETURN FUND, INC. PORTFOLIO OF INVESTMENTS
MAY 31, 2003 (UNAUDITED)
--------------------------------------------------------------------------------
VALUE
----------
REPURCHASE AGREEMENT - 5.2%
(Cost $11,714,000)
Agreement with PNC Capital Markets,
1.200% dated 05/30/03, to be repurchased
at $11,715,171 on 06/02/03,
collateralized by $11,480,000 U.S.
Treasury Note, 2.250% due 07/31/04
(Value $11,723,950) ................................................. $ 11,714,000
---------------
TOTAL INVESTMENTS (COST $209,276,760*) - 103.6% ............................................................ 234,625,379
OTHER ASSETS AND LIABILITIES - (3.6%) ...................................................................... (8,199,588)
---------------
NET ASSETS - 100.0% ........................................................................................ $ 226,425,791
-----------
* Aggregate cost for Federal tax purposes.
+ Non-income producing security.
++ Annualized yield at date of purchase.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
6
BOULDER TOTAL RETURN FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
MAY 31, 2003 (UNAUDITED)
ASSETS:
Investments, at value (Cost $209,276,760) (Note 1)
See accompanying schedule ...................................................................... $ 234,625,379
Cash ............................................................................................. 186
Receivable for investment securities sold ........................................................ 2,055,004
Dividends and interest receivable ................................................................ 54,921
Prepaid expenses and other assets ................................................................ 51,323
Other receivables ................................................................................ 3,300
---------------
TOTAL ASSETS ............................................................................... 236,790,113
LIABILITIES:
Payable for investment securities purchased ................................... $ 9,994,617
Investment co-advisory fees payable (Note 2) .................................. 238,483
Accumulated undeclared dividends on Taxable Auction Market
Preferred Stock (Note 5) ................................................... 31,969
Administration and co-administration fees payable (Note 2) .................... 35,622
Audit fees and expenses payable ............................................... 18,188
Directors' fees and expenses payable (Note 2) ................................. 5,638
Accrued expenses and other payables ........................................... 39,805
---------------
TOTAL LIABILITIES .......................................................................... 10,364,322
---------------
TAXABLE AUCTION MARKET PREFERRED STOCK:
$0.01 par value, 10,000,000 shares authorized, 775 shares issued outstanding,
liquidation preference of $100,000 per share (Note 5) ......................................... $ 77,500,000
---------------
TOTAL NET ASSETS (APPLICABLE TO COMMON STOCK SHAREHOLDERS) .......................................... $ 148,925,791
===============
FUND TOTAL NET ASSETS ............................................................................... $ 226,425,791
===============
NET ASSETS consist of:
Undistributed net investment income .............................................................. $ 707,297
Accumulated net realized loss on investments sold ................................................ (5,958,483)
Unrealized appreciation of investments ........................................................... 25,348,619
Par value of Common Stock ........................................................................ 94,167
Paid-in capital in excess of par value of Common Stock ........................................... 128,734,191
---------------
TOTAL NET ASSETS (APPLICABLE TO COMMON STOCK
9,416,743 SHARES OUTSTANDING) ................................................. $ 15.82 $ 148,925,791
=========== ===============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
7
BOULDER TOTAL RETURN FUND, INC.
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED MAY 31, 2003 (UNAUDITED)
INVESTMENT INCOME:
Dividends ....................................................................................... $ 3,116,408
Interest ........................................................................................ 130,054
----------------
TOTAL INVESTMENT INCOME ................................................................... 3,246,462
EXPENSES:
Investment co-advisory fee (Note 2). .......................................... $ 1,328,310
Administration and co-administration fees (Note 2) ............................ 199,942
Preferred Stock broker commissions and Auction Agent fees ..................... 97,399
Shareholder servicing agent fees .............................................. 26,671
Directors fees and expenses (Note 2) .......................................... 23,629
Audit fees .................................................................... 18,438
Insurance expense (Note 2) .................................................... 14,025
Legal fees .................................................................... 13,623
Custodian fees ................................................................ 12,949
Other ......................................................................... 44,115
---------------
TOTAL EXPENSES ............................................................................ 1,779,101
----------------
NET INVESTMENT INCOME .............................................................................. 1,467,361
================
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Net realized loss on investments sold during the period ......................................... (6,527,263)
Change in unrealized appreciation of investments during the period .............................. 13,237,878
----------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS .................................................... 6,710,615
----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............................................... $ 8,177,976
================
LESS: PREFERRED STOCK DIVIDENDS .................................................................... (577,074)
NETINCREASE IN NET ASSETS RESULTING FROM OPERATIONS
APPLICABLE TO COMMON SHARES ................................................................... $ 7,600,902
================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
8
BOULDER TOTAL RETURN FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
SIX MONTHS ENDED
MAY 31, 2003 YEAR ENDED
(UNAUDITED) NOVEMBER 30, 2002
------------------- -------------------
OPERATIONS:
Net investment income ........................................................ $ 1,467,361 $ 4,561,636
Net realized gain/(loss) on investments sold during the period ............... (6,527,263) 846,240
Change in unrealized appreciation/(depreciation) of investments during
the period ................................................................ 13,237,878 (24,473,124)
-------------- ---------------
Net increase/(decrease) in net assets resulting from operations .............. 8,177,976 (19,065,248)
DISTRIBUTIONS: PREFERRED STOCK DIVIDENDS
Dividends paid from net investment income .................................... (577,074) (1,628,676)
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS APPLICABLE TO COMMON SHARES ............................... 7,600,902 (20,693,924)
DISTRIBUTIONS:COMMON SHARES
Dividends paid from net investment income .................................... (282,509) (1,318,356)
NET INCREASE/(DECREASE) IN NET ASSETS FOR THE PERIOD ........................... 7,318,393 (22,012,280)
NET ASSETS:
Beginning of period .......................................................... 219,107,398 241,119,678
-------------- ---------------
End of period (including undistributed net investment income of $707,297
and $99,519, respectively) ................................................ $ 226,425,791 $ 219,107,398
============== ===============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
9
BOULDER TOTAL RETURN FUND, INC.
FINANCIAL HIGHLIGHTS
FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
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.
SIX MONTHS
ENDED YEAR ENDED NOVEMBER 30,
MAY 31, 2003 ---------------------------------------------------------
(UNAUDITED) 2002 2001 2000 1999 1998
--------- ------------------------------------------ -----------------
OPERATING PERFORMANCE:
Net asset value, beginning of period.................. $ 15.04 $ 17.36 $ 14.81 $ 13.32 $ 16.06 $ 16.33
--------- --------- --------- --------- --------- ---------
Net investment income................................. 0.16 0.49 0.63 0.75 1.29 1.33
Net realized and unrealized gain/(loss) on investments 0.70 (2.51) 2.35 1.50 (1.93) 0.13
--------- --------- --------- --------- --------- ---------
Total from investment operations...................... 0.86 (2.02) 2.98 2.25 (0.64) 1.46
--------- --------- --------- --------- --------- ---------
DISTRIBUTIONS: PREFERRED STOCK
Dividends paid from net investment income to
MMP* Shareholders................................. -- -- -- (0.42) (0.35) (0.25)
Distributions paid from net realized capital gains to
MMP* Shareholders ................................ -- -- -- -- (0.03) (0.14)
Dividends paid from net investment income to
AMP** Shareholders ............................... (0.06) (0.16) (0.40) (0.13) -- --
Change in accumulated undeclared dividends on
MMP*/AMP** Shareholders .......................... 0.01 -- 0.02 0.04 (0.06)+ 0.02
--------- --------- --------- --------- --------- ---------
Net Increase/Decrease from operations applicable to
common shares..................................... 0.81 (2.18) 2.60 1.74 (1.08) 1.09
--------- --------- --------- --------- --------- ---------
DISTRIBUTIONS: COMMON SHARES
Dividends paid from net investment income to Common
Shareholders ..................................... (0.03) (0.14) (0.05) (0.19) (1.02) (1.07)
Distributions paid from net realized capital gains to
Common Shareholders .............................. -- -- -- -- (0.64) (0.29)
--------- --------- --------- --------- --------- ---------
Net Increase/Decrease in Common Net Asset Value....... 0.78 (2.32) 2.55 1.55 (2.74) (0.27)
--------- --------- --------- --------- --------- ---------
Costs of AMP** Stock issued (Note 5).............. -- -- -- (0.06) -- --
--------- --------- --------- --------- --------- ---------
Net asset value, end of period.................... $ 15.82 $ 15.04 $ 17.36 $ 14.81 $ 13.32+ $ 16.06
========= ========= ========= ========= ========= =========
Market value, end of period....................... $ 14.00 $ 12.79 $ 16.05 $ 12.00 $ 10.19 $ 13.63
========= ========= ========= ========= ========= =========
Total investment return based on net asset value(a) 5.40%+++ (12.62)% 17.68% 13.27% (5.17)% 7.65%
========= ========= ========= ========= ========= =========
Total investment return based on market value(a).. 9.73%+++ (19.62)% 34.27% 20.00% (14.51)% (4.55)%
========= ========= ========= ========= ========= =========
RATIOS TO AVERAGE NET ASSETS AVAILABLE
TO COMMON STOCK SHAREHOLDERS:
Operating expenses ............................ 2.63%++ 2.42% 2.47% 2.55% 1.97% 1.83%
Net investment income (b)...................... 1.42%++ 1.85% 1.52% 1.82% 6.08% 5.92%
SUPPLEMENTAL DATA:
Portfolio turnover rate........................ 0% 38% 16% 85% 69% 86%
Net assets, end of period (in 000's) .......... $148,926 $141,607 $163,493 $ 139,488 $125,415 $151,215
---------------------------
Ratio of operating expenses to Total Average Net Assets
including MMP*/AMP**(a)........................ 1.67%++ 1.65% 1.66% 1.57% 1.26% 1.22%
* Money Market Cumulative Preferred(TM) Stock.
** Taxable Auction Market Preferred Stock.
(a) Assumes reinvestment of distributions at the price obtained by the Fund's
Dividend Reinvestment Plan.
(b) The net investment income ratios reflect income net of operating expenses
and payments and change in undeclared dividends to MMP*/AMP** Shareholders.
+ Includes effect of additional distribution available to MMP* Shareholders
($0.04 per Common share).
++ Annualized for the six months ended May 31, 2003.
+++ Returns are based on the lesser of the net asset value or market value on
distribution date.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
10
BOULDER TOTAL RETURN FUND, INC.
FINANCIAL HIGHLIGHTS--(CONTINUED)
The table below sets out information with respect to Taxable Auction Market
Preferred Stock currently and Money Market Cumulative Preferred Stock previously
outstanding (1).
INVOLUNTARY AVERAGE
ASSET LIQUIDATING MARKET
TOTAL SHARES COVERAGE PREFERENCE VALUE
OUTSTANDING PER SHARE PER SHARE (2) PER SHARE (2)
----------- --------- ------------ ------------
05/31/03* ............................ 775 $292,162 $100,000 $100,000
11/30/02 ............................. 775 282,719 100,000 100,000
11/30/01 ............................. 775 311,122 100,000 100,000
11/30/00 ............................. 775 280,400 100,000 100,000
11/30/99 ............................. 775 262,722 100,000 100,000
11/30/98 ............................. 775 295,263 100,000 100,000
-----------
(1) See Note 5.
(2) Excludes accumulated undeclared dividends.
* Unaudited
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
11
BOULDER TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Boulder Total Return Fund, Inc. (the "Fund") 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 (the "1940 Act"), as amended. The policies
described below are followed consistently by the Fund in the preparation of its
financial statements in conformity with accounting principles generally accepted
in the United States of America.
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
Taxable Auction Market Preferred Stock and (iii) accumulated and unpaid
dividends on the outstanding Taxable Auction Market Preferred Stock. Securities
listed on a national securities exchange are valued on the basis of the last
sale on such exchange or the NASDAQ official close price ("NOCP") 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 at the time of purchase, 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.
Cash distributions received from the Fund's investment in real estate
investment trust ("REITs") and registered investment companies ("RICs") are
recorded as income. If the Fund is subsequently informed that such distributions
received or a portion thereof are designated as returns of capital, the Fund
will reclassify such amounts from income and reduce the cost basis of such
securities.
REPURCHASE AGREEMENTS: The Fund may engage in repurchase agreement
transactions. The Fund's Management 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: Dividends to Common
shareholders will be declared in such a manner as to avoid the imposition of the
4% excise tax described in "Federal Income Taxes" below. The shareholders of
Taxable Auction Market Preferred 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 registered 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 registered
investment company by complying with the requirements under subchapter M of the
Internal Revenue Code of 1986, as amended, applicable to RICs and intends to
distribute substantially all of its taxable net investment income to its
shareholders. Therefore, no Federal income tax provision is required.
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.
12
BOULDER TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS-- (UNAUDITED) (CONTINUED)
OTHER: The preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America
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 CO-ADVISORY FEES, DIRECTORS' FEES, ADMINISTRATION FEE,
CO-ADMINISTRATION FEE AND TRANSFER AGENT FEE
Boulder Investment Advisers, L.L.C. ("BIA") and Stewart Investment Advisers
("SIA") serve as the Fund's Co-Investment Advisers ("Advisers"). The Fund pays
the Advisers a monthly fee at an annual rate of 1.25% of the value of the Fund's
average monthly net assets. The equity owners of BIA are Evergreen Atlantic,
LLC, a Colorado limited liability company ("EALLC"), and the Lola Brown Trust
No. 1B (the "Lola Trust"), each of which is a shareholder of the Fund and
considered to be an "affiliated person" of the Fund as that term is defined in
the 1940 Act. Stewart West Indies Trading Company, Ltd. is a Barbados
international business company doing business as Stewart Investment Advisers.
Beginning February 1, 2002, SIA receives a monthly fee equal to 75% of the fees
earned by the Advisers, and BIA receives 25% of the fees earned by the Advisers.
Prior to February 1, 2002, SIA received a monthly fee equal to 65% of the fees
earned by the Advisers, and BIA received 35% of the fees earned by the Advisers.
The equity owner of SIA is the Stewart West Indies Trust, a shareholder of the
Fund and considered to be an "affiliated person" of the Fund as that term is
defined in the 1940 Act.
Fund Administrative Services, LLC ("FAS"), serves as the Fund's
Co-Administrator. Under the Co-Administration Agreement, FAS provides certain
administrative and executive management services to the Fund including:
providing the Fund's principal offices and executive officers, overseeing and
administering all contracted service providers, making recommendations to the
Board regarding policies of the Fund, conducting shareholder relations,
authorizing expenses and other administrative tasks. Under the Co-Administration
Agreement, the Fund pays FAS a monthly fee, calculated at an annual rate of
0.10% of the value of the Fund's average monthly net assets. The equity owners
of FAS are EALLC and the Lola Trust, each of which is a shareholder of the Fund
and considered to be an "affiliated person" of the Fund as that term is defined
in the 1940 Act.
The Fund pays each Director who is not a director, officer or employee of
the Advisers or FAS a fee of $6,000 per annum, plus $4,000 for each in-person
meeting of the Board of Directors and $500 for each telephone meeting. In
addition, the Fund will reimburse all Directors for travel and out-of-pocket
expenses incurred in connection with such meetings.
PFPC Inc. ("PFPC"), an indirect, majority-owned subsidiary of The PNC
Financial Services Group Inc., serves as the Fund's Administrator and Transfer
Agent. As Administrator, PFPC calculates the net asset value of the Fund's
shares and generally assists in all aspects of the Fund's administration and
operation. The Fund pays PFPC a fee on a monthly basis based on average net
assets. PFPC Trust company, an indirect subsidiary of The PNC Financial Services
Group Inc., serves as the Fund's Custodian. As compensation to PFPC Trust
Company, the Fund pays PFPC Trust Company a monthly fee based on the Fund's
average monthly gross assets. PFPC also serves as the Fund's Common Stock
servicing agent (transfer agent), dividend-paying agent and registrar, and as
compensation for PFPC's services as such, the Fund pays PFPC a monthly fee plus
certain out-of-pocket expenses.
Deutsche Bank Trust Company Americas, a wholly owned subsidiary of Deutsche
Bank AG ("Auction Agent"), serves as the Fund's Taxable Auction Market Preferred
Stock transfer agent, registrar, dividend disbursing agent and redemption agent.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities for the six months
ended May 31, 2003, excluding short-term investments, aggregated $0 and
$6,681,765, respectively.
On May 31, 2003, aggregate gross unrealized appreciation for all securities
in which there is an excess of value over tax cost was $42,195,190 and aggregate
gross unrealized depreciation for all securities in which there is an excess of
tax cost over value was $16,846,571.
4. COMMON STOCK
At May 31, 2003, 240,000,000 of $0.01 par value Common Stock were
authorized. There were no Common Stock transactions for the six months ended May
31, 2003 and for the year ended November 30, 2002.
13
BOULDER TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS-- (UNAUDITED) (CONTINUED)
5. TAXABLE AUCTION MARKET PREFERRED 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 August 15, 2000, the
Fund's 775 shares of Money Market Cumulative PreferredTM Stock was retired and
775 shares of the Taxable Auction Market Preferred Stock were issued. Offering
costs of $293,843 and commissions paid directly to Merrill Lynch, Pierce Fenner
& Smith Inc. of $290,625 were charged to capital of common stock to complete the
transaction. Taxable Auction Market Preferred 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 Taxable Auction Market Preferred Stock are
cumulative.
The Fund is required to meet certain asset coverage tests with respect to
the Taxable Auction Market Preferred 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, Taxable Auction Market Preferred 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.
An auction of the Taxable Auction Market Preferred Stock is generally held
every 28 days. Existing shareholders may submit an order to hold, bid or sell
such shares at par value on each auction date. Taxable Auction Market Preferred
Stock Shareholders may also trade shares in the secondary market between auction
dates.
On May 31, 2003, 775 shares of Taxable Auction Market Preferred Stock were
outstanding at the annual rate of 1.38%. 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 earn a higher return on its assets than the cost associated with
the Taxable Auction Market Preferred Stock, including expenses, there can be no
assurance that such results will be attained.
Under Emerging Issues Task Force (EITF) promulgating Topic D-98,
CLASSIFICATION AND MEASUREMENT OF REDEEMABLE SECURITIES, which was issued on
July 19, 2001, preferred securities that are redeemable for cash or other assets
are to be classified outside of permanent equity to the extent that the
redemption is at a fixed or determinable price and at the option of the holder
or upon the occurance of an event that is not solely within the control of the
issuer. Subject to the guidance of the EITF, the Fund's Taxable Auction Market
Preferred Stock, which was previously classified as a component of net assets,
has been reclassified outside of permanent equity (net assets available to
common stock) in the accompanying financial statements. Prior year amounts have
also been classified to conform with this presentation. The impact of this
reclassification creates no change to the net assets available to common
shareholders.
6. PORTFOLIO INVESTMENTS, CONCENTRATION AND INVESTMENT QUALITY
The Fund operates as a "diversified" management investment company, as
defined in the 1940 Act. Under this definition, at least 75% of the value of the
Fund's total assets must at the time of investment consist of cash and cash
items (including receivables), U.S. Government securities, securities of other
investment companies, and other securities limited in respect of any one issuer
to an amount not greater in value than 5% of the value of the Fund's total
assets and to not more than 10% of the voting securities of a single issuer.
This limit does not apply, however, to 25% of the Fund's assets, which may be
invested in a single issuer. A more concentrated portfolio may cause the Fund's
net asset value to be more volatile than it has been historically and thus may
subject shareholders to more risk. The Fund may hold a substantial position (up
to 25% of its assets) in the common stock of a single issuer. As of May 31,
2003, the Fund held a significant position in Berkshire Hathaway, Inc., and
thus, the volatility of the Fund's common stock, and the Fund's net assets value
and its performance in general, depends disproportionately more on the
performance of this single issuer than that of a more diversified fund.
The Fund intends to concentrate its common stock investments in a few
issuers and to take large positions in those issuers, consistent with being a
"diversified" fund. As a result, the Fund is subject to a greater risk of loss
than a fund that diversifies its investments more broadly. Taking larger
positions is also likely to increase the volatility of the Fund's net asset
value reflecting fluctuation in the value of its large holdings. Under normal
market conditions, the Fund intends to invest in a portfolio of common stocks.
The portion of the Fund's assets invested in each can vary depending on market
conditions. The term "common stocks" includes both stocks acquired primarily for
their appreciation potential and stocks acquired for their income potential,
such as
14
BOULDER TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS-- (UNAUDITED) (CONTINUED)
dividend-paying RICs and REITs. The term "income securities" includes
bonds, U.S. Government securities, notes, bills, debentures, preferred stocks,
convertible securities, bank debt obligations, repurchase agreements and
short-term money market obligations.
7. SIGNIFICANT SHAREHOLDERS
On May 31, 2003, trusts and other entities affiliated with the Horejsi
family owned 3,939,735 shares of Common Stock of the Fund, representing
approximately 41.84% of the total Fund shares. Stewart R. Horejsi is the primary
portfolio manager for SIA and is the Fund's primary portfolio manager. He is
responsible for the day-to-day strategic management of the Fund's assets.
8. SHARE REPURCHASE PROGRAM
In accordance with Section 23(c) of the Investment Company Act of 1940, as
amended, the Fund hereby gives notice that it may from time to time repurchase
shares of the Fund in the open market at the option of the Board of Directors
and upon such terms as the Directors shall determine.
MEETING OF SHAREHOLDERS (UNAUDITED)
On April 22, 2003, the Fund held its Annual Meeting of Shareholders to elect
Alfred G. Aldridge, Jr. as Director of the Fund.
PROPOSAL 1
ELECTION OF DIRECTOR
--------------------
ALFRED G. ALDRIDGE, JR. (AMPS* VOTING AS A SINGLE CLASS): # OF VOTES CAST % OF VOTES CAST
-------------------------------------------------------- --------------- ---------------
Affirmative ...................................................... 427 100.0
Withheld ......................................................... -- 0.0
--------- -------
TOTAL ................................................... 427 100.0
========= =======
15
BOULDER TOTAL RETURN FUND, INC.
P.O. Box 43027
Providence, RI 02940-3027
[GRAPHIC OMITTED]
MOUNTAIN ART
BOULDER
TOTAL RETURN
FUND, INC.
-------------------------------------
SEMI-ANNUAL REPORT
MAY 31, 2003
DIRECTORS
Brig. Gen (Ret.) Alfred G. Aldridge Jr.
Richard I. Barr
Susan L. Ciciora
Joel W. Looney
Stephen C. Miller
OFFICERS
Stephen C. Miller
President
Carl D. Johns
Vice President and Treasurer
Stephanie J. Kelley
Secretary
Nicole L. Murphey
Assistant Secretary
WWW.BOULDERFUNDS.NET
If you have questions regarding shares you held in a brokerage account contact
your broker, or, if you have physical possession of your shares in certificate
form, contact the Fund's Transfer Agent & Shareholder Servicing Agent -- PFPC
Inc., at:
P.O. Box 43027
Providence, RI 02940-3027
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.
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer or officers and principal
financial officer or officers, or persons performing similar functions,
have concluded that the registrant's disclosure controls and procedures
(as defined in Rule 30a-3(c) under the Investment Company Act of 1940
(17 CFR 270.30a-3(c))) are effective, based on their evaluation of
these controls and procedures as of a date within 90 days of the filing
date of the report that includes the disclosure required by this
paragraph.
(b) There were no significant changes in the registrant's internal controls
or in other factors that could significantly affect these controls
subsequent to the date of their evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
ITEM 10. EXHIBITS.
(a)(1) Not applicable.
(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 are attached hereto.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) BOULDER TOTAL RETURN FUND INC.
By (Signature and Title)* /S/ STEPHEN C. MILLER
----------------------------------------
Stephen C. Miller, President
(principal executive officer)
Date JULY 24, 2003
--------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /S/ STEPHEN C. MILLER
----------------------------------------
Stephen C. Miller, President
(principal executive officer)
Date JULY 24, 2003
--------------------------------------------------------------
By (Signature and Title)* /S/ CARL D. JOHNS
----------------------------------------
Carl D. Johns, Vice President and Treasurer
(principal financial officer)
Date JULY 24, 2003
--------------------------------------------------------------
* Print the name and title of each signing officer under his or her signature.