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Boulder Growth & Income Fund, Inc. (the “Fund”), acting pursuant to a Securities and Exchange Commission exemptive order and with the approval of the Fund’s Board of Directors (the “Board”), has adopted a plan, consistent with its investment objectives and policies to support a level distribution of income, capital gains and/or return of capital (the “Plan”). In accordance with the Plan, the Fund began distributing $0.033 per share on a monthly basis in November 2015. Subsequently, on November 10, 2016 the Board announced an increase in the monthly distribution to $0.034 per share. The fixed amount distributed per share is subject to change at the discretion of the Fund’s Board. Under the Plan, the Fund will typically distribute most or all of its available investment income to its stockholders, consistent with its primary investment objectives and as required by the Internal Revenue Code of 1986, as amended (the “Code”). The Fund may also distribute long‐term capital gains and short‐term capital gains and return capital to stockholders in order to maintain a level distribution. Each monthly distribution to stockholders is expected to be at the fixed amount established by the Board, except for extraordinary distributions and potential distribution rate increases or decreases to enable the Fund to comply with the distribution requirements imposed by the Code. Stockholders should not draw any conclusions about the Fund’s investment performance from the amount of these distributions or from the terms of the Plan. The Fund’s total return performance on net asset value is presented in its financial highlights table. The Board may amend, suspend or terminate the Fund’s Plan without prior notice if it deems such action to be in the best interest of the Fund or its stockholders. The suspension or termination of the Plan could have the effect of creating a trading discount (if the Fund’s stock is trading at or above net asset value) or widening an existing trading discount. The Fund is subject to risks that could have an adverse impact on its ability to maintain level distributions. Examples of potential risks include, but are not limited to, economic downturns impacting the markets, investments in foreign securities, foreign currency fluctuations and changes in the Code. Please refer to the Fund’s prospectus for a more complete description of its risks.

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May 31, 2017 (Unaudited)

 

Dear Stockholders:

 

The Boulder Growth & Income Fund, Inc. (the “Fund”) got off to a strong start to its fiscal year on an absolute basis as it generated a return of 7.1% on net assets over the six‐month period ending May 31, 2017 (the “period”). On a relative basis, however, the Fund’s return on net assets for the period trailed the 10.8% return generated by the S&P 500 Index, the 11.2% return generated by the Dow Jones Industrial Average (DJIA), the 17.2% return generated by the NASDAQ Composite and the 7.6% return generated by the Morningstar Large Value Fund Category benchmark. Despite this, the Fund continues to maintain its outperformance relative to the S&P 500 Index and the Dow Jones Industrial Average on an annualized net assets basis since we became the investment advisers to the Fund in January of 2002. Furthermore, the Fund continues to outperform the Morningstar Large Value Fund Category benchmark on an annualized net assets basis over the three‐, five‐ and ten‐year periods as illustrated in the table below.

 

On a market price basis, the Fund had an even better performance as it generated a return of 11.4% for the period, which, once again, outpaced its return performance on net assets. The Fund’s strong market price performance was driven in part by a further reduction in the discount of the Fund’s share price relative to its net asset value (the “discount”). As long‐time readers of these letters are aware, the Fund’s board of directors and Advisers have worked hard over the past few years to implement a myriad of actions to seek to improve the Fund and address its discount. We believe these actions have helped contribute to the continued narrowing of the Fund’s discount. While we are pleased to see further progress being made in relation to the discount, we continue to be frustrated that it remains elevated relative to other equity focused closed‐end funds. We believe such a discount is unreasonable and undeserved for reasons discussed in prior stockholder letters. Despite our frustration, we remain undaunted in our commitment to seek to identify additional ways to drive a long‐term and sustainable reduction in the Fund’s discount.

 

 

*	Annualized.

**	Annualized since January 2002, when the advisers became investment advisers to the Fund. Does not include the effect of dilution on non-participating stockholders from the December 2002 rights offering.

†

The Morningstar Large Value Fund Category is comprised of a group of open-end funds that invest primarily in big U.S. companies that are less expensive or growing more slowly than other large-cap stocks. Large Cap stocks are defined as stocks in the top 70% of the capitalization of the U.S. equity market. Additional information about Morningstar’s Category Classifications can be found at www.morningstar.com.

 

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May 31, 2017 (Unaudited)

 

The performance data quoted represents past performance. Past performance is no guarantee of future results. Fund returns include reinvested dividends and distributions, but do not reflect the reduction of taxes that a stockholder would pay on Fund distributions or the sale of Fund shares and do not reflect brokerage commissions, if any. Returns of the S&P 500 Index, the DJIA, and the NASDAQ Composite include reinvested dividends and distributions, but do not reflect the effect of commissions, expenses or taxes, as applicable. Returns of the Morningstar Large Value Fund Category benchmark include reinvested dividends and distributions and expense or taxes, but do not reflect the effect of commissions, as applicable. You cannot invest directly in any of these indices. The investment return and the principal value of an investment will fluctuate and shares, if sold, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted.

 

Taking a deeper look at the numbers, the Fund’s positive absolute performance for the period was aided by some of the Fund’s larger positions. Chief among these was the Fund’s combined position in the Class A and Class B shares of Berkshire Hathaway, Inc. (“Berkshire Hathaway”), which was the largest contributor to the Fund’s overall performance due to its large position size of approximately 28.9% of total assets at period end and its total return over the period of approximately 4.9%. While the Berkshire Hathaway position generated a solid absolute return during the period, its return performance lagged the Fund’s benchmarks, which contributed to the Fund’s overall relative underperformance during the period.

 

Additional contributors to the Fund’s absolute performance for the period were its positions in Yum China Holdings, Inc., Cohen & Steers Infrastructure Fund, Inc., Yum! Brands, Inc., and the combined position in Heineken NV and Heineken Holdings NV. Due to their strong return performances for the period, these positions had a positive impact on the Fund’s relative performance. On the other side of the spectrum, the primary detractors to the Fund’s absolute and relative performance during the period were the Fund’s positions in Chevron Corp., Freeport‐ McMoRan, Inc., Wells Fargo & Co., International Business Machines Corp and Mattel, Inc (“Mattel”). In relation to the Mattel position, we decided to sell out of it during the period due to increasing concerns related to its recent operational performance and the sustainability of its dividend.

 

In regard to the Fund’s position in Berkshire Hathaway, I believe it worthwhile to regularly address some potential concerns specific to it. The first is the idea that the Fund may be susceptible to risks associated with a significant holding in a single business. We take this concern seriously, but also believe that the risks are partially mitigated by the underlying diversity of the businesses that comprise Berkshire Hathaway. The second concern is related to the potential impact on Berkshire Hathaway’s stock when Mr. Buffett eventually relinquishes his role at the company. Our obvious hope is that he discovers the secret to immortality, but we realize that is probably a long‐shot. As a result, we must give thought to his eventual absence.

 

When that day comes, I believe it is reasonable to assume Berkshire Hathaway’s stock will initially decline. Assuming Berkshire Hathaway is still a large part of the Fund’s portfolio at that time, such a decline would obviously have a negative impact on the Fund’s overall performance. Whether that initial decline proves lasting will depend on the stock’s price versus value at the time of his departure. As we stand today, we believe Berkshire Hathaway’s current stock price fairly reflects the value of its underlying businesses and investments and does not include a premium for Mr. Buffett and his prodigious investment skill. Therefore, if his departure were announced today, we believe that any initial price decline for the stock would not prove lasting as we would expect its price would eventually rise to fairly reflect the company’s underlying businesses and investments. While we would consider this a rational conclusion for how the market would react, the market has a penchant for being irrational and our above analysis may, of course, prove incorrect.

 

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May 31, 2017 (Unaudited)

 

As we look ahead, we are troubled by the current market environment. In a world that we believe is facing increased uncertainty, the market continues to rise unabated to new highs. Complacency appears to have taken root and the assumptions underlying current valuations reflect what we feel is an almost blind optimism. While the persistence of low interest rates may prevent this market from being considered a bubble, we do believe it is a market that lacks a margin of safety.

 

Our investment philosophy is to invest in good businesses at attractive valuations for the long‐run. In a market such as this, the problem we face is not in identifying good businesses that should perform well on an operating basis over the long‐term, but in finding them at an attractive valuation that provides an adequate margin of safety. In the absence of appealing investment opportunities, we have become more cautious in our approach. This is evidenced by the increase in the Fund’s cash equivalents position over the period. If current trends persist and we are unable to identify attractive investment opportunities, the Fund could see a further increase in its cash equivalents position through the reduction or exit of current investment positions or through the opportunistic use of covered calls.

 

If the Fund were to increase its position in cash equivalents, it may run the risk of relative underperformance if the market continues to move higher. We view this as an acceptable risk because we are comfortable foregoing speculative returns in the short‐term in favor of achieving investment returns over the long‐term. It is our belief that superior long‐term performance is not made during the heights of a Bull market, but in the depths of a Bear market. At the end of the day, valuation matters. It may be a while before we see a market correction, but it will inevitably occur. When it does, we intend to have the liquidity available to take advantage of it. We have a long list of businesses in which we would love to invest, all we need is for the market to provide an attractive entry point.

 

Whatever the future holds, Stewart, Joel and I will be right alongside you as fellow stockholders. As always, I look forward to writing you again soon and I would like to wish you a wonderful and relaxing summer.

 

Sincerely,

 

 

Brendon Fischer, CFA
Portfolio Manager
June 22, 2017

 

The views and opinions in the preceding commentary are as of the date of this letter and are subject to change at any time. This material represents an assessment of the market environment at a specific point in time, should not be relied upon as investment advice and is not intended to predict or depict performance of any investment.

 

Portfolio weightings and other figures in the foregoing commentary are provided as of period-end, unless otherwise stated.

 

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May 31, 2017 (Unaudited)

 

Note to Stockholders on the Fund’s Discount. As most stockholders are aware, the Fund’s shares presently trade at a significant discount to net asset value. The Fund’s board of directors is aware of this, monitors the discount and periodically reviews the limited options available to mitigate the discount. In addition, there are several factors affecting the Fund’s discount over which the board and management have little control. In the end, the market sets the Fund’s share price. For long‐term stockholders of a closed‐end fund, we believe the Fund’s discount should only be one of many factors taken into consideration at the time of your investment decision.

 

Note to Stockholders on Leverage. The Fund is currently leveraged through a credit facility. The Fund may utilize leverage to seek to enhance the returns for its stockholders over the long‐term; however, this objective may not be achieved in all interest rate environments. Leverage creates certain risks for stockholders, including the likelihood of greater volatility of the Fund’s NAV and market price. There are certain risks associated with borrowing through a line of credit, including, but not limited to risks associated with purchasing securities on margin. In addition, borrowing through a line of credit subjects the Fund to contractual restrictions on its operations and requires the Fund to maintain certain asset coverage ratios on its outstanding indebtedness.

 

Note to Stockholders on Concentration of Investments. The Fund's investment advisers feel it is important that stockholders be aware that the Fund is highly concentrated in a small number of positions. Concentrating investments in a fewer number of securities may involve a degree of risk that is greater than a fund which has less concentrated investments spread out over a greater number of securities. In particular, the Fund is highly concentrated in Berkshire Hathaway, Inc., which, in addition to other business risks, is currently dependent on Warren Buffett for major investment decisions and all major capital allocation decisions. If Mr. Buffett were no longer able to fulfill his responsibilities to Berkshire Hathaway, Inc., the effect on the value of the Fund’s position in Berkshire Hathaway, Inc. could be materially negative.

 

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May 31, 2017 (Unaudited)

 

 

*	Please refer to page 35 for classifications of dividends for the six months ended May 31, 2017.

 

INVESTMENTS AS A % OF TOTAL NET ASSETS

AVAILABLE TO COMMON STOCKHOLDERS

 

 

*	Less than 0.005% of Total Net Assest available to common stockholders.

 

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May 31, 2017 (Unaudited)

 

 

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May 31, 2017 (Unaudited)

 

 

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May 31, 2017 (Unaudited)

 

 

*	Non-income producing security.

(1)	Fair valued security under procedures established by the Fund's Board of Directors. Total value of fair valued securities as of May 31, 2017 was $14,731,672 or 1.22% of Total Net Assets Available to Common Stockholders.

(2)	Restricted security; these securities may only be resold in transactions exempt from registration under the Securities Act of 1933.  (See Notes 11 and 12).

(3)	Memo pledged security; a portion or all of the security is pledged as collateral for borrowings as of May 31, 2017. (See Note 13).

(4)	Loaned security; a portion or all of the security is on loan as of May 31, 2017. (See Note 13).

(5)	Less than 0.005% of Total Net Assets Available to Common Stockholders.

 

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May 31, 2017 (Unaudited)

 

Percentages are stated as a percent of the Total Net Assets Available to Common Stockholders.

 

 

See Accompanying Notes to Financial Statements.

 

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10	www.boulderfunds.net

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May 31, 2017 (Unaudited)

 

*	Securities loaned, at value $11,104,577.

 

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For the Six Months Ended May 31, 2017 (Unaudited)

 

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(a)	Financial Statements consolidated through March 31, 2016, the dissolution date of FOFI 1, Ltd. (See Note 2).

 

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Intentionally Left Blank

 

 

 

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Contained below is selected data for a share of common stock outstanding, total investment return, ratios to average net assets and other supplemental data for the period indicated. This information has been determined based upon information provided in the financial statements and market price data for the Fund’s shares.

 

OPERATING PERFORMANCE:

Net asset value - Beginning of Period

INCOME/(LOSS) FROM INVESTMENT OPERATIONS:

Net investment income(a)

Net realized and unrealized gain/(loss) on investments

Total from Investment Operations

AUCTION MARKET PREFERRED STOCK TRANSACTIONS

Distributions from net investment income

Distributions from long-term capital gains

Total Auction Preferred Stock Transactions

Net Increase/(Decrease) from Operations Applicable to Common Stockholders

DISTRIBUTIONS TO COMMON STOCKHOLDERS

Distributions from net investment income

Distributions from net realized capital gains

Total Distributions Paid to Common Stockholders

Net Increase/(Decrease) in Net Asset Value

Common Share Net Asset Value - End of Period

Common Share Market Value - End of Period

Total Return, Common Share Net Asset Value(c)

Total Return, Common Share Market Value(c)

RATIOS TO AVERAGE NET ASSETS AVAILABLE TO COMMON STOCKHOLDERS:(e)

Ratio of operating expenses to average net assets including waiver

Ratio of operating expenses to average net assets excluding waiver

Ratio of operating expenses to average net assets excluding interest on loan

Ratio of net investment income to average net assets including waiver

Ratio of net investment income to average net assets excluding waiver

SUPPLEMENTAL DATA:

Portfolio turnover rate

Net Assets Applicable to Common Stockholders, End of Period (000's)

Number of Common Shares Outstanding, End of Period (000's)

Ratio of Net Operating Expenses including waiver, when applicable, to Total Average Net Assets including Auction Market Preferred Stock(e)

BORROWINGS AT END OF PERIOD

Aggregate Amount Outstanding (000s)

Asset Coverage Per $1,000

 

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(a)	Calculated based on the average number of common shares outstanding during each fiscal period.

(b)	Amount represents less than $(0.005) per common share.

 

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(c)

Total return based on per share net asset value reflects the effects of changes in net asset value on the performance of the Fund during each fiscal period. Total return based on common share market value assumes the purchase of common shares at the market price on the first day and sale of common shares at the market price on the last day of the period indicated. Dividends and distributions, if any, are assumed to be reinvested at prices obtained under the Fund's distribution reinvestment plan.

(d)	Total return includes an increase from payment by affiliates classified as litigation income. Excluding such item, the total return would have been decreased by 0.60%.

(e)	Ratios do not include the effect of dividends to preferred stockholders. Also, these ratios do not reflect the proportionate share of income and expenses of the underlying investee funds (i.e. those listed under Hedge Fund or Registered Investment Companies on the Portfolio of Investments).

(f)	Annualized.

(g)	Interest expense was incurred but was not presented separately in previously issued financial statements.

 

The table below sets out information with respect to Taxable Auction Market Preferred Stock previously issued.⁽¹⁾⁽²⁾

(1)	See Note 6 in Notes to Financial Statements.

(2)	The Auction Market Preferred Stock (“AMPS”) issued by the Fund were fully redeemed at the liquidation preference, plus accumulated but unpaid dividends, on April 23, 2013.

(3)	Calculated by subtracting the Fund's total liabilities from the Fund's total assets and dividing by the number of AMPS outstanding.

(4)	Excludes accumulated undeclared dividends.

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May 31, 2017 (Unaudited)

 

NOTE 1. FUND ORGANIZATION

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Boulder Growth & Income Fund, Inc. (the “Fund” or “BIF”), is a non‐diversified, closed‐end management 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 “1940 Act”). The Fund is considered an investment company for financial reporting purposes under generally accepted accounting principles in the United States of America (“GAAP”).

 

On March 20, 2015 (the “Reorganization Date”), Boulder Total Return Fund, Inc. (“BTF”), The Denali Fund Inc. (“DNY”) and First Opportunity Fund, Inc. (“FOFI” and, together with BTF and DNY, the “Acquired Funds”) reorganized into the Fund (the “Reorganization”), pursuant to a certain Agreement and Plan of Reorganization.

 

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES

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The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The preparation of financial statements is in accordance with GAAP, which 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.

 

Basis for Consolidation: The accompanying consolidated financial statements include the account of FOFI 1, Ltd. (the “Subsidiary”) a wholly‐owned subsidiary of the Fund, organized under the laws of the Cayman Islands. In accordance with the Agreement and Plan of Reorganization, the ownership of the Subsidiary was transferred from FOFI to the Fund on the Reorganization Date. FOFI 1, Ltd. was dissolved on March 31, 2016.

 

Portfolio Valuation: Equity securities for which market quotations are readily available (including securities listed on national securities exchanges and those traded over‐the‐counter) are valued based on the last sales price at the close of the applicable exchange. If such equity securities were not traded on the valuation date, but market quotations are readily available, they are valued at the bid price provided by an independent pricing service or by principal market makers. Equity securities traded on NASDAQ are valued at the NASDAQ Official Closing Price. Debt securities are valued at the mean between the closing bid and asked prices, or based on a matrix system which utilizes information (such as credit ratings, yields and maturities) from independent pricing services, principal market makers, or other independent sources. Money market mutual funds are valued at their net asset value. Short‐term fixed income securities such as Commercial Paper, Bankers Acceptances and U.S. Treasury Bills, having a maturity of less than 60 days are valued using market quotations or a matrix method provided by a pricing service. If prices are not available from the pricing service, then the securities will be priced at fair value under procedures approved by the Board of Directors (the “Board”). The Board has delegated to the Valuation Committee, the responsibility of determining the fair value of any security or financial instrument owned by the Fund for which market quotations are not readily available or where the pricing agent or market maker does not provide a valuation or methodology, or provides a valuation or methodology that, in the judgment of the Valuation Committee, does not represent fair value (“Fair Value Securities”). The Valuation Committee uses a third‐party pricing consultant to assist the committee in analyzing, developing, applying and documenting a methodology with respect to certain Fair Value Securities. The Valuation Committee and the valuation consultant, as appropriate, use valuation techniques that could utilize both observable and unobservable inputs. In such circumstances, the Valuation Committee is responsible for (i) identifying Fair Value Securities, (ii) analyzing each Fair Value Security and developing, applying and documenting a methodology for valuing Fair Value Securities, and (iii) periodically reviewing the appropriateness and accuracy of the methods used in valuing Fair Value Securities. The appointment of any officer or employee of the advisers or Fund to the Valuation Committee shall be promptly reported to the Board and ratified by the Board at its next regularly scheduled meeting. The Valuation Committee is responsible for reporting to the Board, on a quarterly basis, valuations and certain findings with respect to the Fair Value Securities. Such valuations and findings are reviewed by the entire Board on a quarterly basis.

 

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May 31, 2017 (Unaudited)

 

The Portfolio of Investments includes investments valued at $14,731,672 (1.22% of total net assets), whose fair values have been estimated by management in the absence of readily determinable fair values. Due to the inherent uncertainty of the valuation of these investments, these values may differ from the values that would have been used had a ready market for these investments existed and the differences could be material.

 

The Fund’s investment in an unregistered pooled investment vehicle (“Hedge Fund”) is valued, as a practical expedient, at the most recent net asset value determined by the Hedge Fund manager according to such manager’s policies and procedures based on valuation information reasonably available to the Hedge Fund manager at that time; provided, however, that the Valuation Committee may consider whether it is appropriate, in light of relevant circumstances, to adjust such valuation in accordance with the Fund’s valuation procedures. If the Hedge Fund does not report a value to the Fund on a timely basis, the fair value of the Hedge Fund shall be based on the most recent value reported by the Hedge Fund, as well as any other relevant information available at the time the Fund values its portfolio. The frequency and timing of receiving valuations for the Hedge Fund investment is subject to change at any time, without notice to investors, at the discretion of the Hedge Fund manager or the Fund.

 

For valuation purposes, the last quoted prices of non‐U.S. equity securities may be adjusted under certain circumstances described below. If the Valuation Committee determines that developments between the close of a foreign market and the close of the New York Stock Exchange (“NYSE”) will, in its judgment, materially affect the value of some or all of the Fund’s portfolio securities, the Valuation Committee may adjust the previous closing prices to reflect what it believes to be the fair value of the securities as of the close of the NYSE. In deciding whether it is necessary to adjust closing prices to reflect fair value, the Valuation Committee reviews a variety of factors, including developments in foreign markets, the performance of U.S. securities markets, and the performance of instruments trading in U.S. markets that represent foreign securities and baskets of foreign securities. The Valuation Committee may also fair value securities in other situations, such as when a particular foreign market is closed but the U.S. market is open. The Valuation Committee may use outside pricing services to provide it with closing prices. The Valuation Committee may consider whether it is appropriate, in light of relevant circumstances, to adjust such valuation in accordance with the Fund’s valuation procedures. The Valuation Committee cannot predict how often it will use closing prices and how often it will determine it necessary to adjust those prices to reflect fair value. If the Valuation Committee adjusts prices, the Valuation Committee will periodically compare closing prices, the next day’s opening prices in the same markets and those adjusted prices as a means of evaluating its security valuation process.

 

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May 31, 2017 (Unaudited)

 

Options are valued at the mean of the highest bid and lowest ask prices on the principal exchange on which the option trades. If no quotations are available, fair value procedures will be used. Fair value procedures will also be used for any options traded over‐the‐counter.

 

Various inputs are used to determine the value of the Fund's investments. Observable inputs are inputs that reflect the assumptions market participants would use based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions based on the best information available in the circumstances.

 

These inputs are summarized in the three broad levels listed below.

 

Level 1 — Unadjusted quoted prices in active markets for identical investments

Level 2 — Significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)

Level 3 — Significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

 

The following is a summary of the inputs used as of May 31, 2017 in valuing the Fund’s investments carried at value:

 

*	For detailed descriptions, see the accompanying Portfolio of Investments.

**

In accordance with ASU 2015-07 and Subtopic 820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient have not been classified in the fair value hierarchy. The fair value amount presented in the Total column of this table is intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Statement of Assets and Liabilities.

 

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May 31, 2017 (Unaudited)

 

The Fund evaluates transfers into or out of Level 1, Level 2 and Level 3 as of the end of the reporting period.

 

There were no transfers into or out of Levels 1 and 2 during the period ended May 31, 2017.

 

The following is a reconciliation of assets in which significant unobservable inputs (Level 3) were used in determining fair value:

 

 

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May 31, 2017 (Unaudited)

 

The table below provides additional information about the Level 3 Fair Value Measurements as of May 31, 2017 where the Fund used its own significant assumptions:

 

Quantitative Information about Level 3 Fair Value Measurements

 

(a)	A change to the unobservable input may result in a significant change to the value of the investment as follows:

 

 

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 as of the ex‐dividend date or for certain foreign securities, when the information becomes available to the Fund. Non‐cash dividends included in dividend income, if any, are recorded at the fair market value of the securities received. Interest income, including amortization of premium and accretion of discount on debt securities, as required, is recorded on the accrual basis.

 

Dividend income from investments in real estate investment trusts (“REITs”) is recorded at management’s estimate of income included in distributions received. Distributions received in excess of this amount are recorded as a reduction of the cost of investments. The actual amount of income and return of capital are determined by each REIT only after its fiscal year‐end, and may differ from the estimated amounts. Such differences, if any, are recorded in the Fund’s following year.

 

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May 31, 2017 (Unaudited)

 

Foreign Currency Translations: The Fund may invest a portion of its assets in foreign securities. In the event that the Fund executes a foreign security transaction, the Fund will generally enter into a forward foreign currency contract to settle the foreign security transaction. Foreign securities may carry more risk than U.S. securities, such as political, market and currency risks. See Foreign Issuer Risk under Note 7.

 

The books and records of the Fund are maintained in U.S. dollars. Foreign currencies, investments and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the exchange rate prevailing at the end of the period, and purchases and sales of investment securities, income and expenses transacted in foreign currencies are translated at the exchange rate on the dates of such transactions. Foreign currency gains and losses result from fluctuations in exchange rates between trade date and settlement date on securities transactions, foreign currency transactions, and the difference between the amounts of foreign interest and dividends recorded on the books of the Fund and the amounts actually received.

 

The portion of realized and unrealized gains or losses on investments due to fluctuations in foreign currency exchange rates is not separately disclosed and is included in realized and unrealized gains or losses on investments, when applicable.

 

Dividends and Distributions to Stockholders: It is the Fund’s policy to distribute substantially all net investment income and net realized gains to stockholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code of 1986, as amended. Distributions to stockholders are recorded on the ex‐dividend date. Any net realized short‐term capital gains will be distributed to stockholders at least annually. Any net realized long‐term capital gains may be distributed to stockholders at least annually or may be retained by the Fund as determined by the Fund’s Board. 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 stockholders as a credit against their own tax liabilities.

 

Indemnifications: Like many other companies, the Fund’s organizational documents provide that its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, both in some of its principal service contracts and in the normal course of its business, the Fund enters into contracts that provide indemnifications to other parties for certain types of losses or liabilities. The Fund’s maximum exposure under these arrangements is unknown as this could involve future claims against the Fund.

 

Federal Income Tax: For federal income tax purposes, the Fund currently qualifies, and intends to remain qualified as a regulated investment company under the provisions of Subchapter M of the Internal Revenue Code of 1986, as amended, by distributing substantially all of its earnings to its stockholders. Accordingly, no provision for federal income or excise taxes has been made.

 

Income and capital gain distributions are determined and characterized in accordance with income tax regulations, which may differ from U.S. GAAP. These differences are primarily due to differing treatments of income and gains on various investment securities held by the Fund, timing differences and differing characterization of distributions made by the Fund as a whole.

 

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May 31, 2017 (Unaudited)

 

As of and during the six‐month period ended May 31, 2017, the Fund did not have a liability for any unrecognized tax benefits. The Fund files U.S. federal, state, and local tax returns as required. The Fund’s tax returns are subject to examination by the relevant tax authorities until expiration of the applicable statute of limitations, which is generally three years after the filing of the tax return for federal purposes and four years for most state returns. Tax returns for open years have incorporated no uncertain tax positions that require a provision for income taxes.

 

NOTE 3. DERIVATIVE FINANCIAL INSTRUMENTS

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As a part of its investment strategy the Fund may invest to a lesser extent in derivatives contracts. In doing so, the Fund will employ strategies in differing combinations to permit them to increase, decrease, or change the level or types of exposure to market factors. Central to those strategies are features inherent in derivatives that make them more attractive for this purpose than equity or debt securities; they require little or no initial cash investment, they can focus exposure on only certain selected risk factors, and they may not require the ultimate receipt or delivery of the underlying security (or securities) to the contract. This may allow the Fund to pursue its objectives more quickly and efficiently than if it were to make direct purchases or sales of securities capable of affecting a similar response to market factors.

 

Risk of Investing in Derivatives: The Fund’s use of derivatives can result in losses due to unanticipated changes in the market risk factors and the overall market. In instances where the Fund is using derivatives to decrease, or hedge, exposures to market risk factors for securities held by the Fund, there are also risks that those derivatives may not perform as expected, resulting in losses for the combined or hedged positions.

 

Derivatives may have little or no initial cash investment relative to their market value exposure and therefore can produce significant gains or losses in excess of their cost. This use of embedded leverage allows the Fund to increase its market value exposure relative to its net assets and can substantially increase the volatility of the Fund’s performance.

 

Associated risks from investing in derivatives also exist and potentially could have significant effects on the valuation of the derivative and the Fund. Typically, the associated risks are not the risks that the Fund is attempting to increase or decrease exposure to, per its investment objectives, but are the additional risks from investing in derivatives.

 

Examples of these associated risks are liquidity risk, which is the risk that the Fund will not be able to sell or close out the derivative in a timely manner, and counterparty credit risk, which is the risk that the counterparty will not fulfill its obligation to the Fund. In addition, use of derivatives may increase or decrease exposure to the following risk factors:

 

Equity Risk: Equity risk relates to the change in value of equity securities as they relate to increases or decreases in the general market. Associated risks can be different for each type of derivative and are discussed by each derivative type in the notes that follow.

 

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May 31, 2017 (Unaudited)

 

Option Contracts: The Fund may enter into options transactions for hedging purposes and for non‐hedging purposes such as seeking to enhance return. The Fund may write covered put and call options on any stocks or stock indices, currencies traded on domestic and foreign securities exchanges, or futures contracts on stock indices, interest rates and currencies traded on domestic and, to the extent permitted by the Commodity Futures Trading Commission, foreign exchanges. A call option on an asset written by the Fund obligates the Fund to sell the specified asset to the holder (purchaser) at a stated price (the exercise price) if the option is exercised before a specified date (the expiration date). A put option on an asset written by the Fund obligates the Fund to buy the specified asset from the purchaser at the exercise price if the option is exercised before the expiration date. Premiums received when writing options are recorded as liabilities and are subsequently adjusted to the current value of the options written. Premiums received from writing options that expire are treated as realized gains. Premiums received from writing options, which are either exercised or closed, are offset against the proceeds received or amount paid on the transaction to determine realized gains or losses.

 

The Fund had the following transactions in written call options during the six‐months ended May 31, 2017.

 

 

The Fund’s derivative positions as of May 31, 2017 are as follows:

 

 

The average volume of written option contracts for the Fund was 195 during the six‐months ended May 31, 2017.

 

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May 31, 2017 (Unaudited)

 

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May 31, 2017 (Unaudited)

 

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May 31, 2017 (Unaudited)

 

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May 31, 2017 (Unaudited)

 

Boulder Growth & Income Fund, Inc.

Notes to Financial Statements

Restricted securities as of May 31, 2017, were as follows:

 

Issuer Description	Acquisition Date		Cost				Value May 31, 2017				Value as Percentage of Net Assets Available to Common Stockholders May 31, 2017
Forethought Financial Group, Inc., Escrow - Class A	11/13/09-9/30/10		$	0			$	27,130				0.00	%(a)
Ithan Creek Partners L.P.	6/2/08			846,183				1,746,850				0.14	%
MidCountry Financial Corp.	10/22/04			4,654,500				3,860,132				0.32	%
South Street Securities Holdings, Inc.	12/8/03			2,500,000				4,666,000				0.39	%
			$	8,000,683			$	10,300,112				0.85	%

 

(a)	Less than 0.005% of Total Net Assets available to Common Stockholders.

NOTE 12. INVESTMENT IN A HEDGE FUND

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As of May 31, 2017, the Fund holds a residual interest in a Hedge Fund. As of June 30, 2014, the Fund had notified the managing general partner of the Hedge Fund that it was withdrawing its interest in the Hedge Fund. A portion of the interest was withdrawn at that time. However, certain illiquid securities designated at the discretion of the managing general partner of the Hedge Fund had been segregated in “side pockets”, and were not immediately available for distribution. Such illiquid securities are referred to as “Designated Investments”. As a result, the Fund continues to maintain a residual, non-participating interest in the Hedge Fund, associated with the Designated Investments held in side pockets. Due to the  Reorganization, the Fund acquired additional residual, nonparticipating interest in the Hedge Fund from DNY. The Fund will maintain such interest until all the Designated Investments within the side pockets have been liquidated and distributed, which will likely occur incrementally and over a period of years. Because of the illiquidity of the Designated Investments, the limitation on withdrawal rights and because limited partnership interests are not tradable, the investment in the Hedge Fund is an illiquid investment and involves a high degree of risk. A management fee at an annual rate of 1% of net assets and an incentive fee of 20% of net profits is included in the partnership agreement. The value assigned to the Hedge Fund is based on available information and may not necessarily represent the amount which might ultimately be realized. Due to the inherent uncertainty of valuation, the estimated fair value may  differ  from  the  value  that  would  have been  realized  had  the Hedge  Fund  been liquidated and this difference could be material.

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May 31, 2017 (Unaudited)

 

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May 31, 2017 (Unaudited)

 

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Use of Personal Information. The Fund will only use Personal Information (i) as necessary to service or maintain stockholder accounts in the ordinary course of business and (ii) to support business functions of the Fund and its affiliated businesses. This means that the Fund may share certain Personal Information, only as permitted by law, with affiliated businesses of the Fund, and that such information may be used for non‐Fund‐related solicitation. When Personal Information is shared with the Fund’s business affiliates, the Fund may do so without providing you the option of preventing these types of disclosures as permitted by law.

Safeguards Regarding Personal Information. Internally, we also restrict access to Personal Information to those who have a specific need for the records. We maintain physical, electronic, and procedural safeguards that comply with federal standards to guard Personal Information. Any doubts about the confidentiality of Personal Information, as required by law, are resolved in favor of confidentiality.

SECTION 19(A) NOTICES

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The following table sets forth the estimated amount of the sources of distribution for purposes of Section 19 of the Investment Company Act of 1940, as amended, and the related rules adopted thereunder. The Fund estimates the following percentages, of the total distribution amount per share, attributable to (i) current and prior fiscal year net investment income, (ii) net realized short‐ term capital gain, (iii) net realized long‐term capital gain and (iv) return of capital or other capital source as a percentage of the total distribution amount. These percentages are disclosed for the fiscal year‐to‐date cumulative distribution amount per share for the Fund.

 

The amounts and sources of distributions reported in these 19(a) notices are only estimates and not for tax reporting purposes. The actual amounts and sources of the amounts for tax reporting purposes will depend upon the Fund’s investment experience during the remainder of its fiscal year and may be subject to changes based on tax regulations. The Fund will send you a Form 1099‐DIV for the calendar year that will tell you how to report these distributions for federal income tax purposes.

 

 

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