The Boulder Total Return Fund, Inc. (NYSE: BTF) announced today that, due to a number of factors, not the least of which includes the stock market decline and the recent unprecedented economic events, it will suspend its level-rate distribution policy (the “Policy”) and payment of monthly distributions for an indefinite period. The suspension is effective immediately.
At a regular meeting held on November 10, 2008, the Fund’s Board of Directors considered continuation of the Policy and a number of alternatives and other factors before coming to the conclusion to suspend the Policy. Joel Looney, Director of the Fund, said that “suspending the policy was a very difficult decision; but we have to face the facts -- the stock market is down 35% not only in the U.S., but in virtually every major market. We are at a historic moment in the economic history of the U.S. Our first responsibility is to the Fund and the long-term interest of its stockholders. The Board has concluded that suspending the Policy will better serve that long-term interest.”
The Board recognized that the Fund has indicated a goal of providing predictable, but not assured, level of cash flow. Mr. Looney noted, however, that the Policy has always been subject to the Board’s discretion to suspend, modify or terminate the Policy at any time. Mr. Looney noted that “the Fund, and the economy as a whole, are experiencing unprecedented and extraordinary economic circumstances and it is necessary for the Fund to adapt to those circumstances for the best long-term interest of stockholders.”
Steve Miller, the Fund’s president, identified a number of factors that influenced the Board in its decision to suspend the Policy:
- The Policy and the decline in the Fund’s net assets have adversely impacted the Fund’s rating agencies’ leverage coverage ratios.
- Fund management believes that the overall decline in the stock market has produced a number of attractively priced companies. The Board believes that common stockholders are likely to realize a better total return if the Fund prudently invests its assets in good companies rather than continuing to pay out the level rate distribution.
- Recent market declines have caused the distribution rate under the Policy to increase dramatically relative to net assets, taking the effective yield to over 30% on market. The Board has emphasized that the distribution rate under the Policy would not exceed the Fund’s long-term performance.
- The Policy has adversely impacted the Fund’s expense ratio (i.e., every dollar paid out increases the expense ratio because it reduces the assets of the Fund relative to its fixed expenses).
- The Policy has not been effective in narrowing the Fund’s discount from net asset value, and it appears that presently few, if any, other closed-end funds are benefiting from level distribution payout policies.
When asked whether suspension of the Policy would be permanent, Mr. Looney said, “It will depend on two things: first, whether it is in the best interest of our stockholders and second (and related to the first), whether managed distribution programs provide pricing support for closed-end fund shares in the future. Based on our research, it appears that the days when a managed distribution program was a net positive in narrowing a fund’s discount are over, especially after the SEC lifted its moratorium on exemptive applications. Based on the number of exemptive applications that have been published over the past 3 months, dozens of new funds could come on line with managed distribution programs before the end of the year which, in the aggregate, is apt to dilute the discount-narrowing impact of all managed distribution programs including the Fund’s.”
At the meeting, the Board also reviewed the Fund’s outstanding auction market preferred shares and the options available to the Fund for substitute leverage. Based on the Board’s review of the current and anticipated cost of the AMPS, the adequacy and availability of replacement leverage, and the long-term interests of the common stockholders, the Board found it in the Fund’s best interest to leave the AMPS outstanding. The Fund continues to meet all obligations to the AMPS holders, the AMPS continue to receive AAA credit ratings from their respective rating agencies and AMPS holders continue to receive all periodic payments based on the applicable rate.
As of Friday, November 7, 2008, the Fund’s net asset value was $13.52 and the closing market price was $12.30, which was a 9.0% discount to net asset value. The Fund is a diversified closed-end management investment company co-managed by Stewart Investment Advisers and Boulder Investment Advisers, LLC. For more information on the Funds, please visit www.boulderfunds.net.