As filed with the Securities and Exchange Commission on July 8, 2005.

Securities Act Registration No. 333-__________

Investment Company Registration No. 811-7390



                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM N-2

           REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
                        Pre-Effective Amendment No. ___ [  ]
                       Post-Effective Amendment No. ___ [  ]
                                     and/or
                          REGISTRATION STATEMENT UNDER
                     THE INVESTMENT COMPANY ACT OF 1940 [X]
                               AMENDMENT NO. 9 [X]

                       Boulder Growth & Income Fund, Inc.
               (Exact Name of Registrant as Specified In Charter)

                           1680 38th Street, Suite 800
                             Boulder, Colorado 80301
                    (Address of Principal Executive Offices)

                                 (303) 444-5483
              (Registrant's Telephone Number, including Area Code)

                             Stephen C. Miller, Esq.
                        Boulder Investment Advisers, LLC
                           1680 38th Street, Suite 800
                             Boulder, Colorado 80301

                     (Name and Address of Agent for Service)

                                   Copies to:

                             Arthur L. Zwickel, Esq.
                     Paul, Hastings, Janofsky & Walker, LLP
                       515 South Flower Street, 25th Floor
                              Los Angeles, CA 90071


APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:  As soon as practicable  after the
effective date of this Registration Statement.

If any securities  being registered on this form will be offered on a delayed or
continuous basis in reliance on Rule 415 under the Securities Act of 1933, other
than securities  offered in connection with a dividend  reinvestment plan, check
the following box. [ ]




                                  CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

                                                                                                    
                 Title of Securities                   Amount Being    Proposed             Proposed            Amount of
                 Being Registered                      Registered      Maximum Offering     Maximum Aggregate   Registration Fee
                                                                       Price per Unit       Offering Price

Shares of  Preferred  Stock,  par value  $25,000  per
share...............................................   1,000 shares    $25,000              $25,000,000         $2,942.50


     The registrant  hereby amends this  Registration  Statement on such date or
     dates as may be necessary to delay its effective  date until the Registrant
     shall  file  a  further  amendment  that  specifically   states  that  this
     Registration Statement shall thereafter become effective in accordance with
     Section  8(a) of the  Securities  Act of 1933,  as  amended,  or until this
     Registration   Statement  shall  become  effective  on  such  date  as  the
     Securities and Exchange  Commission,  acting pursuant to said Section 8(a),
     may determine.




                       BOULDER GROWTH & INCOME FUND, INC.

                                     Form N2

                              CROSS REFERENCE SHEET


                                                                           

Items In 
Part A     Caption                                                               Location in Prospectus

Item 1.    Outside Front Cover.................................................. Front Cover Page

Item 2.    Inside Front and Outside Back Cover Page............................. Front Cover Page

Item 3.    Fee Table and Synopsis............................................... Prospectus Summary and Fee Table

Item 4.    Financial Highlights................................................. Financial Highlights (Unaudited)

Item 5.    Plan of Distribution................................................. Front Cover Page;  Prospectus Summary; The Auction;
                                                                                 Underwriting

Item 6.    Selling Shareholders................................................. Not Applicable

Item 7.    Use of Proceeds...................................................... Use of Proceeds

Item 8.    General Description of the Registrant................................ Cover   Page;   Prospectus   Summary;   The   Fund;
                                                                                 Investment   Objective  and  Policies;   Investment
                                                                                 Philosophy;  Risk  Factors;  Determination  of  Net
                                                                                 Asset Value;  Capitalization  of the Fund and Other
                                                                                 Matters

Item 9.    Management........................................................... Prospectus   Summary;   Management   of  the  Fund;
                                                                                 Portfolio Contents; Description of Preferred Shares

Item 10.   Capital Stock , Long-Term Debt, and Other Securities................. Capitalization;  Description  of Preferred  Shares;
                                                                                 The Auction;  Capitalization  of the Fund and Other
                                                                                 Matters; Federal Income Tax Matters

Item 11.   Defaults and Arrears on Senior Securities...........................  Not Applicable

Item 12.   Legal Proceedings.................................................... Not Applicable

Item 13.   Table of Contents of the Statement of Additional                      Table of Contents of the  Statement  of  Additional
                                                                                 Information
           Information..........................................................



Items In 
Part B      Caption                                                              Location in Statement of Additional Information


Item 14.    Cover Page.........................................................  Front Cover Page

Item 15.    Table of Contents..................................................  Front Cover Page

Item 16.    General Information and History....................................  Not Applicable

Item 17.    Investment Objective and Policies..................................  Investment   Objective  and  Policies;   Investment
                                                                                 Philosophy;

Item 18.    Management.........................................................  Management of the Fund;

Item 19.    Control Persons and Principal Holders of Securities................  Management  of  the  Fund;  Security  Ownership  of
                                                                                 Certain  Beneficial  Owners;  Ownership of the Fund
                                                                                 by Directors

Item 20.    Investment Advisory and Other Services.............................  Management  of  the  Fund;   Compensation   to  the
                                                                                 Advisers and  Administrator;  Factors Considered by
                                                                                 the   Independent   Directors  in   Approving   the
                                                                                 Investment   Advisory   Agreements;   Duration  and
                                                                                 Termination; Conflicts of Interest

Item 21.    Brokerage Allocation and Other Practices...........................  Portfolio  Transactions,  Brokerage  Allocation and
                                                                                 Other Practices

Item 22.    Tax Status.........................................................  Federal Income Tax Matters

Item 23.    Financial Statements...............................................  Financial Statements


PART C OTHER INFORMATION

Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C to this Registration Statement.





THE  INFORMATION  IN THIS  PROSPECTUS  IS NOT  COMPLETE  AND MAY BE  CHANGED.  A
REGISTRATION  STATEMENT  RELATING  TO THE  SECURITIES  HAS BEEN  FILED  WITH THE
SECURITIES AND EXCHANGE COMMISSION.  WE MAY NOT SELL THESE SECURITIES UNTIL THIS
REGISTRATION  STATEMENT IS  EFFECTIVE.  THIS  PROSPECTUS IS NOT AN OFFER TO SELL
THESE  SECURITIES AND IT IS NOT  SOLICITING AN OFFER TO BUY THESE  SECURITIES IN
ANY STATE WHERE THE OFFER, SOLICITATION OR SALE IS NOT PERMITTED.

                              SUBJECT TO COMPLETION

                    PRELIMINARY PROSPECTUS DATED JULY 8, 2005


                                   PROSPECTUS

                                   $25,000,000
                       BOULDER GROWTH & INCOME FUND, INC.
              Auction Market Preferred Shares ("Preferred Shares")

                                  1,000 Shares
                    Liquidation Preference $25,000 Per Share


The Boulder  Growth & Income Fund,  Inc. (the "Fund") is offering  1,000 Auction
Market  Preferred  Shares.  The shares are  referred  to in this  prospectus  as
"Preferred  Shares."  The  Fund  is  a  closed-end,  non-diversified  management
investment company.

Investment Objective.  The Fund's investment objective is total return. The Fund
seeks to produce both income and long-term capital  appreciation by investing in
a portfolio of equity and debt securities.  The Fund invests primarily in common
stocks,  including  dividend  paying  common  stocks  such as  those  issued  by
utilities,  real estate  investment  trusts ("REITs") and closed-end  registered
investment  companies.  The Fund also invests in fixed income securities such as
U.S.  government  securities,  preferred  stocks  and  bonds.  The Fund  invests
primarily  in  securities  of  U.S.-based  companies  and to a lesser  extent in
foreign  equity  securities  and  sovereign  debt, in each case  denominated  in
foreign  currency.  The Fund has no  restrictions  on its  ability  to invest in
foreign  securities.  The Fund is  concentrated  in REITs,  which  means it must
invest  more than 25% of its total  assets  in REITs and  companies  in the real
estate  industry.  No  assurance  can be given  that the Fund will  achieve  its
investment objective.

Investment Advisers.  Boulder Investment Advisers,  LLC ("BIA") and Stewart West
Indies  Trading  Company,   Ltd.  d/b/a  Stewart  Investment   Advisers  ("SIA")
(collectively the "Advisers") act as the co-investment advisers to the Fund. The
address of the Fund and BIA is 1680 38th Street,  Suite 800,  Boulder,  Colorado
80301. The address of SIA is Bellerive, Queen Street, St. Peter, Barbados.

INVESTING IN THE PREFERRED SHARES INVOLVES RISKS THAT ARE DESCRIBED IN THE "RISK
FACTORS" SECTION  BEGINNING ON PAGE 23 OF THIS PROSPECTUS.  THE MINIMUM PURCHASE
AMOUNT OF THE PREFERRED SHARES IS $25,000.

NEITHER  THE  SECURITIES  AND  EXCHANGE  COMMISSION  NOR  ANY  STATE  SECURITIES
COMMISSION  HAS APPROVED OR DISAPPROVED  THESE  SECURITIES OR DETERMINED IF THIS
PROSPECTUS  IS TRUTHFUL OR  COMPLETE.  ANY  REPRESENTATION  TO THE CONTRARY IS A
CRIMINAL OFFENSE.


                                                                          
                                                                 PER SHARE      TOTAL
                                                               -------------- -------------

Public offering price (1).................................       $25,000        $25,000,000

Sales load................................................

Estimated offering expenses...............................

Proceeds, after expenses, to the Fund.....................



(1)  The  public  offering  price per share will be  increased  by the amount of
     dividends, if any, that have accumulated from the date the Preferred Shares
     are first issued.

The underwriter is offering the Preferred Shares subject to various  conditions.
The  underwriter  expects to deliver  the  Preferred  Shares to  purchasers,  in
book-entry form,  through the facilities of The Depository Trust Company ("DTC")
on or about _________, 2005.

__________________, 2005

[Lead Underwriter - Full Name]





You should read this  prospectus,  which sets forth  concisely  the  information
about the Fund  that a  prospective  investor  ought to know  before  investing,
before  deciding  whether to invest in the Preferred  Shares,  and retain it for
future  reference.  A Statement of Additional  Information  dated July __, 2005,
containing  additional  information  about the  Fund,  has been  filed  with the
Securities  and  Exchange  Commission  and is  incorporated  by reference in its
entirety  into this  prospectus.  You can  review the table of  contents  of the
Statement  of  Additional  Information  on page 48 of this  prospectus.  You may
request a free copy of the  Statement of  Additional  Information  or the Fund's
annual and semi-annual  reports,  request other  information  about the Fund, or
make shareholder  inquiries by calling (800) 331-1710 or by writing to the Fund.
The Fund's  Statement  of  Additional  Information  and  annual and  semi-annual
reports   are  also   available   free  of   charge   on  the   Fund's   website
(http://www.boulderfunds.net)  and on the Securities  and Exchange  Commission's
website  (http://www.sec.gov),  which also contains other  information about the
Fund. You may also email requests for these documents to  publicinfo@sec.gov  or
make a request in writing to the  Securities  and Exchange  Commission's  Public
Reference Section,  Washington,  D.C. 20549-0102. The Fund's registration number
under the  Investment  Company  Act of 1940,  as  amended  (the  "1940  Act") is
811-02328.

The Preferred  Shares do not  represent a deposit or obligation  of, and are not
guaranteed or endorsed by, any bank or other insured depository  institution and
are not federally  insured by the Federal  Deposit  Insurance  Corporation,  the
Federal Reserve Board or any other government agency.

The Fund is  offering  1,000  Preferred  Shares.  The  Preferred  Shares  have a
liquidation  preference  of $25,000  per  share,  plus any  accumulated,  unpaid
dividends. The Preferred Shares also have priority over the Fund's common shares
as to distribution of assets, as described in this prospectus. It is a condition
of closing this offering  that the Preferred  Shares be assigned a rating of Aaa
by Moody's Investor Services, Inc. ("Moody's") and AAA by Fitch, Inc. ("Fitch").

The dividend rate for the Preferred  Shares for the initial dividend period will
be ___%. The initial  dividend period for the Preferred  Shares is from the date
of issuance through  ____________,  2005. For subsequent periods,  the Preferred
Shares will pay  dividends  based on a rate set at auction,  usually  held every
twenty-eight  days.  Prospective  purchasers should carefully review the auction
procedures described in this prospectus and should note: (1) a buy order (called
a "bid order") or sell order is a  commitment  to buy or sell  Preferred  Shares
based on the results of an auction;  and (2) purchases and sales will be settled
on the next business day after the auction.

THE PREFERRED SHARES WILL NOT BE LISTED ON AN EXCHANGE. YOU MAY ONLY BUY OR SELL
PREFERRED  SHARES THROUGH AN ORDER PLACED AT AN AUCTION WITH OR THROUGH  CERTAIN
BROKER-DEALERS  OR IN A SECONDARY MARKET  MAINTAINED BY CERTAIN  BROKER-DEALERS.
THESE  BROKER-DEALERS  ARE NOT REQUIRED TO MAINTAIN THIS MARKET,  AND IT MAY NOT
PROVIDE YOU WITH LIQUIDITY.






                                TABLE OF CONTENTS
                                                                                                              
PRIVACY PRINCIPLES OF THE FUND....................................................................................3
PROSPECTUS SUMMARY................................................................................................4
FINANCIAL HIGHLIGHTS (UNAUDITED).................................................................................17
THE FUND.........................................................................................................17
USE OF PROCEEDS..................................................................................................17
CAPITALIZATION...................................................................................................18
INVESTMENT OBJECTIVE AND POLICIES................................................................................18
INVESTMENT PHILOSOPHY............................................................................................20
PORTFOLIO CONTENTS...............................................................................................20
RISK FACTORS.....................................................................................................23
MANAGEMENT OF THE FUND...........................................................................................27
DESCRIPTION OF PREFERRED SHARES..................................................................................33
   GENERAL.......................................................................................................33
   DIVIDENDS AND RATE PERIODS....................................................................................33
   REDEMPTION....................................................................................................36
   LIQUIDATION...................................................................................................36
   RATING AGENCY GUIDELINES AND ASSET COVERAGE...................................................................37
   VOTING RIGHTS.................................................................................................38
THE AUCTION......................................................................................................39
   GENERAL.......................................................................................................39
   AUCTION AGENCY AGREEMENT......................................................................................39
   BROKER-DEALER AGREEMENTS......................................................................................39
   AUCTION PROCEDURES............................................................................................39
   SUBMISSION OF ORDERS BY BROKER-DEALERS TO AUCTION AGENT.......................................................41
   NOTIFICATION OF RESULTS AND SETTLEMENT........................................................................42
   SECONDARY MARKET TRADING AND TRANSFERS OF Preferred Shares....................................................42
FEDERAL INCOME TAX MATTERS.......................................................................................43
DETERMINATION OF NET ASSET VALUE.................................................................................45
UNDERWRITING.....................................................................................................47
CAPITALIZATION OF THE FUND AND OTHER MATTERS.....................................................................45
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION.....................................................48



                _______________________________________________

You  should  rely  only  on the  information  contained  in or  incorporated  by
reference into this prospectus. The Fund has not, and the underwriters have not,
authorized any other person to provide you with different information. If anyone
provides you with different or inconsistent information,  you should not rely on
it. The Fund is not, and the underwriters are not, making an offer to sell these
securities in any  jurisdiction  where the offer or sale is not  permitted.  The
information  appearing  in  this  prospectus  is  given  as of the  date of this
prospectus. The Fund's business,  financial condition, results of operations and
prospects may have changed since the date of this prospectus.


                         PRIVACY PRINCIPLES OF THE FUND

The Fund has established the following  policy regarding  information  about the
Fund's  shareholders:  We  consider  all  shareholder  data  to be  private  and
confidential,  and we hold ourselves to the highest standards in its safekeeping
and use. The Fund collects nonpublic  information (e.g., name,  address,  Social
Security Number,  Fund holdings) about  shareholders  from  transactions in Fund
shares.  The  Fund  will  not  release   information  about  current  or  former
shareholders (except as permitted by law) unless one of the following conditions
is met: (i) we receive your prior written consent; (ii) we believe the recipient
to be you or your authorized representative;  or (iii) we are required by law to
release  information  to the  recipient.  The  Fund  has not and will not in the
future give or sell information about its current or former  shareholders to any
other company,  individual, or group (except as permitted by law). The Fund will
only use information  about its shareholders as necessary to service or maintain
shareholder  accounts in the ordinary  course of business.  Internally,  we also
restrict  access to shareholder  personal data to those who have a specific need
for the records. We maintain physical, electronic and procedural safeguards that
comply with Federal  standards to guard your personal  data.  The Fund's primary
service providers (i.e., advisers, administrators,  transfer agent and custodian
(the "Service Providers")) have adopted individual privacy policies that conform
with and assure the Fund's compliance with the foregoing.

The Fund and its  Service  Providers  restrict  access  to  non-public  personal
information  about  its  shareholders  to  employees  of the  Fund's  investment
advisers  and  their  affiliates  with  a  legitimate   business  need  for  the
information.  The Fund maintains physical,  electronic and procedural safeguards
designed to protect the non-public personal information of its shareholders. For
more   information   about   the   Fund's   privacy   policies,   please   visit
http://www.boulderfunds.net.




                               PROSPECTUS SUMMARY

The  following  is only a summary.  This  summary  does not  contain  all of the
information that you should consider before  investing in the Preferred  Shares,
especially  the  information  set forth under the heading  "Risk  Factors."  You
should  review  the  more  detailed  information  contained  in the body of this
prospectus,  the Statement of  Additional  Information  and the Fund's  Articles
Supplementary  Creating  and Fixing the Rights of Auction  Preferred  Stock (the
"Articles  Supplementary") attached as Appendix C to the Statement of Additional
Information.


                 
The  Fund           Boulder   Growth  &  Income   Fund,   Inc.  is  a
                    non-diversified,  closed-end  management  investment company
                    that was  organized  in  October  1972 and began  investment
                    activities  in January  1974.  The Fund's  common shares are
                    traded on the New York Stock Exchange (the "NYSE") under the
                    symbol  "BIF." As of _____ __, 2005,  the Fund had _________
                    shares of  common  stock  outstanding.  The  average  weekly
                    trading volume of the Fund's common stock on the NYSE during
                    the  period  from  ____________  through  _____________  was
                    ____shares.  As of ______ ___,  2005,  the net assets of the
                    Fund were approximately $___________.

                    As of July ___,  2005, the Fund had a bank line of credit in
                    the amount of $20,000,000  (the "Bank Debt") of which it had
                    drawn down $20,000,000. The Bank Debt is used for investment
                    and will be repaid entirely in conjunction with the Offering
                    (defined below) out of the proceeds of the Offering.

                    The  Fund's  investment   advisers  are  Boulder  Investment
                    Advisers,  LLC and Stewart West Indies Trading Company, Ltd.
                    d/b/a Stewart Investment  Advisers.  The address of the Fund
                    and BIA is 1680 38th Street,  Suite 800,  Boulder,  Colorado
                    80301.  The address of SIA is Bellerive,  Queen Street,  St.
                    Peter, Barbados.

The  Offering       The Fund is  offering an  aggregate  of 1,000
                    Preferred  Shares at a purchase  price of $25,000  per share
                    plus dividends,  if any, that have accumulated from the date
                    the Fund first issues the Preferred Shares (the "Offering").
                    The Preferred  Shares are being  offered  through a group of
                    underwriters (the "Underwriters") led by [Lead Underwriter -
                    Full Name] ("Lead Underwriter").

                    The Preferred  Shares  entitle their holders to receive cash
                    dividends  at an annual  rate  that may vary for  successive
                    dividend  periods.  In general,  except as  described  under
                    "Description  of Preferred  Shares" and  "Dividends and Rate
                    Periods"  below,  the  dividend  period  for each  series of
                    Preferred  Shares will be twenty-eight  days.  Deutsche Bank
                    Trust Company  Americas (the "Auction Agent") will determine
                    the  dividend  rate for any  dividend  period by an  auction
                    conducted on the business day immediately prior to the start
                    of that dividend period. See "The Auction."

                    The Preferred Shares are not listed on an exchange. Instead,
                    investors may buy or sell Preferred  Shares at an auction by
                    submitting orders to  broker-dealers  that have entered into
                    agreements  ("Broker-Dealer  Agreements")  with the  Auction
                    Agent  ("Broker-Dealers")  or to  broker-dealers  that  have
                    entered into separate agreements with a Broker-Dealer.

                    Generally,  investors  in  the  Preferred  Shares  will  not
                    receive certificates representing ownership of their shares.
                    The   Depository   Trust  Company  or  any  successor   (the
                    "Securities  Depository"  or "DTC") or its  nominee  for the
                    account of the investor's Broker-Dealer will maintain record
                    ownership  of  Preferred   Shares  in  book-entry  form.  An
                    investor's Broker-Dealer,  in turn, will maintain records of
                    that investor's beneficial ownership of Preferred Shares.

Investment Objective and     The Fund's investment objective is total return. The
Principal Investment         Fund seeks to produce both income and long-term capital
Strategies                   appreciation by investing in a portfolio of equity and
                             debt securities. The Fund invests primarily in common
                             stocks, including dividend paying common stocks such
                             as those issued by utilities, real estate investment 
                             trusts ("REITs") and regulated investment companies 
                             under the Code (as defined below) ("RICs").
                             The Fund also invests in fixed income securities such
                             as U.S. government securities, preferred stocks and bonds.
                             The Fund invests primarily in securities of U.S.-based
                             companies and to a lesser extent in foreign equity
                             securities and sovereign debt, in each case
                             denominated in foreign currency. The Fund has no
                             restrictions on its ability to invest in foreign
                             securities. The Fund is concentrated in REITs,
                             which means it must invest more than 25% of its
                             total assets in REITs and companies in the real
                             estate industry. No assurance can be given that the
                             Fund will achieve its investment objective. See
                             "Investment Objective and Policies."



                    The  Fund  is a  "non-diversified"  investment  company,  as
                    defined in the 1940 Act, which means that it is permitted to
                    invest its assets in a more  limited  number of issuers than
                    "diversified"  investment  companies.  A diversified company
                    may not,  with  respect to 75% of its total  assets,  invest
                    more than 5% of its total  assets in the  securities  of any
                    one issuer and may not own more than 10% of the  outstanding
                    voting  securities of any one issuer.  However,  pursuant to
                    the  requirements  of  Subchapter M of the Internal  Revenue
                    Code of 1986, as amended (the "Code"), (A) not more than 25%
                    of the Fund's total assets may be invested in  securities of
                    any one issuer (other than U.S.  government  securities  and
                    RICs) or of any two or more issuers  controlled  by the Fund
                    which may be deemed to be  engaged  in the same,  similar or
                    related trades or businesses, and (B) with respect to 50% of
                    the total value of the Fund's  portfolio,  (i) the Fund must
                    limit  to 5% the  portion  of  its  assets  invested  in the
                    securities of a single  issuer  (other than U.S.  government
                    securities  and  RICs),  and  (ii) the Fund may not own more
                    than 10% of the  outstanding  voting  securities  of any one
                    issuer (other than U.S. government securities and RICs). 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 "non-diversified" fund. As a result,
                    the Fund may be  subject  to a  greater  risk of loss than a
                    diversified   fund  or  a  fund  that  has  diversified  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 large  Fund
                    holdings.

                    The Fund has  adopted a  concentration  policy  pursuant  to
                    which it must, under normal market  conditions,  invest more
                    than 25% of its total  assets in REITs or  companies  in the
                    real  estate  industry.  The Fund  must  obtain  shareholder
                    approval  prior to changing this policy.  The portion of the
                    Fund's  assets  invested  in REITs and such other  companies
                    will vary based on market conditions, but it is not expected
                    to exceed 50% of total assets.  As of July ___, 2005,  ____%
                    of the Fund's  assets were  invested in REITs.  Although the
                    Fund can invest in REITs of any size,  it currently  intends
                    to invest in REITs with  market  capitalizations  of greater
                    than $500 million.  Although the Fund  generally  invests in
                    U.S. REITs, such companies may invest directly or indirectly
                    in  non-U.S.  properties,  and  the  Fund  may  make  direct
                    investments  in foreign  REITs.  The Fund presently owns one
                    foreign REIT security.

                    Under the 1940 Act,  the Fund must limit to 10% the  portion
                    of its assets  invested in RICs, and under  Subchapter M, no
                    single  investment can exceed 25% of the Fund's total assets
                    at the time of purchase.  These  percentage  limitations are
                    calculated  at the time of  investment,  and the Fund is not
                    required  to dispose of assets if  holdings  increase  above
                    these levels due to appreciation.  As of July __, 2005, ___%
                    of the Fund's assets were invested in RICs,  and ___% of the
                    Fund's  assets were  invested in  Berkshire  Hathaway,  Inc.
                    (NYSE:  BRK). The Fund has no restrictions on its ability to
                    invest in foreign  securities.  As of July __, 2005, ___% of
                    the Fund's assets were invested in foreign securities.

                    Under normal market  conditions,  the Fund intends to invest
                    at least 80% of its net assets in common  stocks,  primarily
                    domestic  common stocks and  secondarily  in foreign  common
                    stocks denominated in foreign currencies. The portion of the
                    Fund's  assets that are not invested in common stocks may be
                    invested in fixed income  securities,  cash  equivalents and
                    income-producing  common stocks. The term  "income-producing
                    common  stocks"  includes  RICs whose  objective  is income,
                    REITs, and other  dividend-paying  common stocks,  while the
                    term  "fixed  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.

                    Under normal circumstances, the Fund will not have more than
                    10% of its assets in cash or cash equivalents. The Fund may,
                    for temporary defensive purposes,  allocate a higher portion
                    of its  assets  to  cash  and  cash  equivalents.  For  this
                    purpose,  cash  equivalents  consist of, but are not limited
                    to,  short-term  (less than twelve months to maturity)  U.S.
                    government  securities,  certificates  of deposit  and other
                    bank  obligations,  investment grade corporate bonds,  other
                    debt instruments and repurchase agreements.

                    Except  for  the  Fund's  investment   objective,   industry
                    concentration  and  fundamental  investment  restrictions as
                    described  in  this  prospectus  and  in  the  Statement  of
                    Additional  Information,   the  percentage  limitations  and
                    investment  policies  set  forth in this  prospectus  can be
                    changed  by the  Fund's  Board of  Directors  (the  "Board")
                    without shareholder approval.

Use of  Leverage    The  Fund  expects  to  utilize  financial
by the Fund         leverage  on  an  ongoing  basis  for  investment   purposes
                    specifically  through the issuance of the Preferred  Shares.
                    After  completion of the Offering,  the Fund anticipates its
                    total leverage from the issuance of Preferred Shares will be
                    approximately  [22%] of the Fund's total assets. This amount
                    may change but the Fund will not incur  additional  leverage
                    in the form of  preferred  shares  if as a result  its total
                    leverage  would  exceed  50% of  the  Fund's  total  assets.
                    Although  the Fund may in the future  offer other  preferred
                    shares,  increase the number of Preferred  Shares,  or incur
                    other  indebtedness,  which would further leverage the Fund,
                    the Fund does not currently intend to offer preferred shares
                    other than the Preferred  Shares  offered hereby or to incur
                    indebtedness,  other than  short-term  credits in connection
                    with the settlements of portfolio transactions.



                    The Fund generally will not utilize leverage if the Advisers
                    anticipate  that leverage  would result in a lower return to
                    holders  of the  Fund's  common  shares  over  time.  Use of
                    financial  leverage  creates an  opportunity  for  increased
                    returns for the holders of the Fund's  common shares but, at
                    the same time,  creates the  possibility  for  greater  loss
                    (including the likelihood of greater volatility of net asset
                    value  and  market  price  of  the  common   shares  and  of
                    dividends),  and there can be no assurance that a leveraging
                    strategy will be successful during any period in which it is
                    employed.  Because  the fees  paid to the  Advisers  will be
                    calculated on the basis of the Fund's  managed  assets,  the
                    fees will be higher when leverage  (including  the Preferred
                    Shares) is  utilized,  giving the  Advisers an  incentive to
                    utilize leverage.

Risk                The  following is a summary of the  principal  risks of
Considerations      investing in the Preferred Shares.  You should read the more
                    extensive discussion in this prospectus under "Risk Factors"
                    beginning on page 23.

                    Risks of  Investing  in the  Preferred  Shares.  The primary
                    risks of investing in the Preferred Shares are:

                             |X|      If an auction fails you may not be able to
                                      sell some or all of your shares.

                             |X|      Because of the nature of the market for
                                      Preferred Shares, you may receive less
                                      than the price you paid for your Preferred
                                      Shares if you sell them outside of the
                                      auction, especially when market interest
                                      rates are rising.

                             |X|      A rating agency could, at any time,
                                      downgrade or withdraw its rating assigned
                                      to the Preferred Shares without prior
                                      notice to the Fund or shareholders. Any
                                      downgrading or withdrawal of rating could
                                      affect the liquidity of the Preferred
                                      Shares in an auction.

                             |X|      The Fund may be forced to redeem Preferred
                                      Shares to meet regulatory or rating agency
                                      requirements or may voluntarily redeem
                                      your shares in certain circumstances.

                             |X|      In certain circumstances, the Fund may not
                                      earn sufficient income from its
                                      investments to pay dividends on the
                                      Preferred Shares.

                             |X|      If interest rates rise, the value of the
                                      Fund's investment portfolio will decline,
                                      reducing the asset coverage for Preferred
                                      Shares.

                    Leverage  Risk.  The Preferred  Shares  leverage  creates an
                    opportunity for increased return but, at the same time, will
                    involve special risk  considerations.  Leveraging  resulting
                    from the Preferred  Shares will magnify  declines as well as
                    increases in the net asset value of the Fund's  common stock
                    and  in  the  net  return  on its  portfolio.  Although  the
                    principal  amount of the  Fund's  Preferred  Shares  will be
                    fixed, the Fund's assets may change in value during the time
                    the  Preferred  Shares  are  outstanding,   thus  increasing
                    exposure to capital risk.  To the extent the return  derived
                    from the assets obtained with the Preferred  Shares proceeds
                    exceeds the interest and other  expenses  that the Fund will
                    have to pay,  the Fund's net return will be greater  than if
                    Preferred Shares leverage was not used. Conversely, however,
                    if the return from the assets  obtained  with the  Preferred
                    Shares  proceeds  is not  sufficient  to  cover  the cost of
                    borrowing,  the net  return of the Fund will be less than if
                    Preferred  Shares  leverage was not used,  and therefore the
                    amount available for distribution to the Fund's shareholders
                    as dividends will be reduced.

                    Interest Rate Risk. The Preferred Shares pay dividends based
                    on  shorter-term  interest  rates.  The Fund  presently  has
                    invested  the  proceeds  of the Bank Debt in REITs and other
                    dividend    paying   and   income    producing    securities
                    (collectively,    "Income    Producing    Securities")   and
                    anticipates  continuing  to  do  so  in  order  to  generate
                    sufficient  income to pay dividends on the Preferred  Shares
                    when  due.  The  dividends  and  rates  paid  on the  Income
                    Producing  Securities  can  be  expected  to  fluctuate.  If
                    short-term  interest  rates  rise,  dividend  rates  on  the
                    Preferred  Shares will also rise since the  auction  setting
                    the  dividend  rate on  Preferred  Shares  will  compete for
                    investors with other short-term  instruments.  A significant
                    increased dividend rate on the Preferred Shares could result
                    in the Fund  under-earning  its Preferred  Shares  dividend,
                    which  would  lead  to  the  Preferred  Shares  shareholders
                    receiving a return of capital, assuming there are no capital
                    gains to be paid  out.  Similarly,  if the  rating  agencies
                    lower the  rating  assigned  to the  Preferred  Shares,  the
                    dividend rate on the Preferred  Shares will likely increase.
                    The Fund  must pay all its  expenses  before  it can pay any
                    dividends, including any Preferred Shares dividends.


                    Risk Associated with  Concentrating  in REITs.  The Fund has
                    adopted  an  investment  policy of  concentrating  in REITs.
                    Under  normal  market  conditions,  the Fund is  required to
                    maintain over 25% of its  investments in REITs and companies
                    in  the  real   estate   industry.   The  Fund  must  obtain
                    shareholder  approval  prior to changing  this policy,  thus
                    limiting its  flexibility  to liquidate  REITs in the future
                    should   market   conditions   warrant.   Since   the   Fund
                    concentrates  its assets in the real  estate  industry,  the
                    Fund's  performance  will be impacted by the  performance of
                    the REIT markets. Property values may fall due to increasing
                    vacancies or declining rents resulting from economic, legal,
                    cultural or technological developments. REIT prices also may
                    drop  because of the failure of borrowers to pay their loans
                    and poor  management.  Many REITs  utilize  leverage,  which
                    increases  investment  risk  and  could  adversely  affect a
                    REIT's  operations  and  market  value in  periods of rising
                    interest  rates as well as risks  normally  associated  with
                    debt financing. In addition, there are risks associated with
                    particular sectors of real estate investments (e.g., retail,
                    office,  hotel,  healthcare  and  multifamily   properties),
                    although the Fund does not intend to focus on any particular
                    sector of real estate investments.

                    Auction Risk.  The dividend  rate for the  Preferred  Shares
                    normally is set through an auction process.  In the auction,
                    holders of Preferred  Shares may indicate the dividend  rate
                    at  which  they  would  be  willing  to hold  or sell  their
                    Preferred Shares or purchase  additional  Preferred  Shares.
                    The  auction  also  provides   liquidity  for  the  sale  of
                    Preferred  Shares.  An  auction  fails  if  there  are  more
                    Preferred Shares offered for sale than there are buyers. You
                    may not be able to sell your Preferred  Shares at an auction
                    if the  auction  fails.  A holder  of the  Preferred  Shares
                    therefore  can be  given no  assurance  that  there  will be
                    sufficient  clearing  bids in any auction or that the holder
                    will be able to sell its  Preferred  Shares  in an  auction.
                    Also,  if you place bid orders  (orders to retain  Preferred
                    Shares) at an auction only at a specified dividend rate, and
                    that rate exceeds the rate set at the auction,  you will not
                    retain  your  Preferred  Shares.  Additionally,  if you  buy
                    Preferred Shares or elect to retain Preferred Shares without
                    specifying a dividend rate below which you would not wish to
                    buy or continue to hold those  Preferred  Shares,  you could
                    receive a lower rate of return on your Preferred Shares than
                    the market  rate.  Finally,  the  dividend  periods  for the
                    Preferred  Shares  may be  changed  by the Fund,  subject to
                    certain  conditions  and  with  notice  to  the  holders  of
                    Preferred  Shares,  which could also affect the liquidity of
                    your investment.

                    As noted above,  if there are more Preferred  Shares offered
                    for sale than there are buyers for those Preferred Shares in
                    any  auction,  the auction will fail and you may not be able
                    to sell some or all of your  Preferred  Shares at that time.
                    The   relative   buying  and  selling   interest  of  market
                    participants  in your  Preferred  Shares and in the  auction
                    rate  securities  market as a whole will vary over time, and
                    such variations may be affected by, among other things, news
                    relating  to the Fund,  the  attractiveness  of  alternative
                    investments,  the  perceived  risk of  owning  the  security
                    (whether  related to credit,  liquidity  or any other risk),
                    the tax treatment  accorded the instruments,  the accounting
                    treatment accorded auction rate securities, including recent
                    clarifications  of  U.S.   generally   accepted   accounting
                    principles   relating  to  the  treatment  of  auction  rate
                    securities,   reactions  to  regulatory   actions  or  press
                    reports,  financial  reporting  cycles and market  sentiment
                    generally.  Shifts  of  demand  in  response  to any  one or
                    simultaneous  particular  events cannot be predicted and may
                    be short-lived or exist for longer periods.

                    Secondary  Market  Risk.  If you try to sell your  Preferred
                    Shares  between  auctions you may not be able to sell any or
                    all of your Preferred  Shares or you may not be able to sell
                    them  for  $25,000  per  share or  $25,000  per  share  plus
                    accumulated but unpaid dividends. If the Fund has designated
                    a special dividend  period,  changes in interest rates could
                    affect  the  price  you  would  receive  if  you  sold  your
                    Preferred Shares in the secondary  market.  You may transfer
                    Preferred  Shares  outside of auctions  only to or through a
                    Broker-Dealer   that  has  entered   into  a   Broker-Dealer
                    Agreement, or other persons as the Fund permits.

                    Securities and Exchange Commission Inquiries. Certain of the
                    Underwriters  have advised the Fund that those  Underwriters
                    and  various  other  broker-dealers  and  other  firms  that
                    participate in the auction rate  securities  market received
                    letters  from  the  staff  of the  Securities  and  Exchange
                    Commission in the spring of 2004. The letters requested that
                    each of these  firms  voluntarily  conduct an  investigation
                    regarding its  respective  practices and  procedures in that
                    market.   Pursuant   to  these   requests,   each  of  those
                    Underwriters conducted its own voluntary review and reported
                    its  findings  to the  Securities  and  Exchange  Commission
                    staff.  At  the  staff's  request,  those  Underwriters  are
                    engaging  in  discussions  with  the  staff  concerning  its
                    inquiry. Neither those Underwriters nor the Fund can predict
                    the ultimate outcome of the inquiry or how that outcome will
                    affect the market for the Preferred Shares or the auctions.



                    Ratings and Asset Coverage  Risk.  While it is expected that
                    Moody's  will assign a rating of Aaa and Fitch will assign a
                    rating of AAA to the Preferred  Shares,  such ratings do not
                    eliminate or necessarily  mitigate the risks of investing in
                    the Preferred  Shares.  Moody's or Fitch could downgrade its
                    rating of the Preferred Shares or withdraw its rating of the
                    Preferred  Shares  at any time,  which may make your  shares
                    less liquid at an auction or in the secondary market and may
                    materially  and adversely  affect the value of the Preferred
                    Shares if sold  outside  an  auction.  If the Fund  fails to
                    satisfy   the  asset   coverage   ratios   discussed   under
                    "Description of Preferred Shares - Rating Agency  Guidelines
                    and Asset Coverage," the Fund will be required to redeem, at
                    a  time  that  may  not be  favorable  to  the  Fund  or its
                    shareholders, a sufficient number of the Preferred Shares in
                    order  to  return  to  compliance  with the  asset  coverage
                    ratios.

                    Restrictions   on   Dividends   and   Other   Distributions.
                    Restrictions  imposed  on the  declaration  and  payment  of
                    dividends  or  other  distributions  to the  holders  of the
                    Fund's common shares and Preferred Shares,  both by the 1940
                    Act and by requirements  imposed by rating  agencies,  might
                    impair the Fund's ability to maintain its qualification as a
                    regulated   investment   company  for  federal   income  tax
                    purposes.

                    General  Risks of Investing  in the Fund.  The Fund is not a
                    complete investment program and should only be considered as
                    an addition to an investor's existing diversified  portfolio
                    of   investments.   Due  to  uncertainty   inherent  in  all
                    investments,  there can be no  assurance  that the Fund will
                    achieve its investment objectives.

                             |X|   Non-Diversified  Status Risk.  The Fund is  classified  as  "non-diversified"
                                   under the 1940 Act. As a result,  it can invest a greater  portion of its assets
                                   in  obligations  of a single  issuer than a  "diversified"  fund.  The Fund will
                                   therefore  be  more  susceptible  than a  diversified  fund to  being  adversely
                                   affected  by  any  single   corporate,   economic,   political   or   regulatory
                                   occurrence.  The  Fund  intends  to  diversify  its  investments  to the  extent
                                   necessary  to  qualify,  and  maintain  its status,  as a  regulated  investment
                                   company under U.S.  federal  income tax laws. See "Risks Factors - General Risks
                                   of Investing in the Fund" and "Federal Income Tax Matters."

                             |X|   Investments  in Common  Stocks.  The Fund  expects  to invest,  under  normal
                                   market  conditions,  in excess of 80% of its assets in  publicly  traded  common
                                   stocks.   Common  stocks   generally  have  greater  risk  exposure  and  reward
                                   potential  over time than  bonds.  The  volatility  of common  stock  prices has
                                   historically  been  greater  than bonds,  and as the Fund  invests  primarily in
                                   common  stocks,  the  Fund's  net  asset  value may also be  volatile.  Further,
                                   because the time horizon for the Fund's  investments  in common stock is longer,
                                   the time  necessary  for the Fund to achieve its  objective of total return will
                                   likely be longer than for a fund that invests solely for income.

                             |X|   Reinvestment Risk. Income from the Fund's portfolio will decline if the Fund invests
                                   the income from, or proceeds from the sale of its, Income Producing Securities into lower
                                   yielding instruments. A decline in income could affect the Fund's ability to pay
                                   dividends on the Preferred Shares.

                             |X|   Concentration Risk. 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
                                   "non-diversified" fund. As a result, the Fund may be subject to a greater risk of loss than
                                   a diversified fund or a fund that has diversified 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 large Fund holdings.

                             |X|   Investment  in  Berkshire  Hathaway.   The  Fund  presently  has  invested  a
                                   significant percentage of its portfolio in Berkshire Hathaway,  Inc. (NYSE: BRK)
                                   ("Berkshire").  As of July  ___,  2005,  the  Fund  held 310  Berkshire  Class A
                                   shares,  representing  ____% of the Fund's assets. The Advisers do not currently
                                   intend to liquidate any portion of the Fund's  position in  Berkshire.  Although
                                   not an insurance  company itself,  Berkshire owns Geico Insurance and General Re
                                   Insurance,  and therefore derives a significant  portion of its income,  and its
                                   value,  from  these two  insurance  companies.  The  insurance  business  can be
                                   significantly  affected by interest  rates as well as price  competition  within
                                   the  industry.  In addition,  an insurance  company may  experience  significant
                                   changes in its year to year operating  performance based both on claims paid and
                                   on performance of invested assets.  Insurance  companies can also be affected by
                                   government  regulations  and tax laws,  which may  change  from time to time.  A
                                   significant  decline in the market price of  Berkshire  or any other  company in
                                   which the Fund has made a significant  common stock  investment (i) would result
                                   in a  significant  decline in the Fund's net asset  value,  (ii) may result in a
                                   proportionate  decline in the  market  price of the Fund's  common  shares,  and
                                   (iii) may result in greater risk and market  fluctuation  than a fund that has a
                                   more diversified portfolio.



                             |X|   Investments in REITs.  The Fund has adopted a  concentration  policy pursuant
                                   to which it must,  under normal market  conditions,  invest more than 25% of its
                                   total assets in REITs or companies  in the real estate  industry.  The Fund must
                                   obtain  shareholder  approval  prior to changing this policy,  thus limiting its
                                   flexibility to liquidate REITs in the future should market  conditions  warrant.
                                   Since the Fund will  concentrate  its assets in the real  estate  industry,  the
                                   Fund's  performance  will be generally  linked to performance of the real estate
                                   markets.  Property  values may fall due to  increasing  vacancies  or  declining
                                   rents resulting from economic,  legal,  cultural or technological  developments.
                                   REIT  prices  also may drop  because of the  failure of  borrowers  to pay their
                                   loans  and  poor  management.  Many  REITs  utilize  leverage,  which  increases
                                   investment risk and could adversely affect a REIT's  operations and market value
                                   in periods of rising interest  rates, as well as risks normally  associated with
                                   debt  financing.  In  addition,  there  are  risks  associated  with  particular
                                   sectors of real estate investments (e.g., retail, office, hotel,  healthcare and
                                   multifamily  properties),  although  the Fund  does not  intend  to focus on any
                                   particular sector of real estate investments.

                             |X|   Leveraging  Risk.  The Fund is currently  leveraged  with the Bank Debt which
                                   will be replaced with leverage  from the Preferred  Shares.  Use of leverage may
                                   have a number of  adverse  effects on the Fund and its  shareholders  including:
                                   (i) leverage may magnify market  fluctuations in the Fund's underlying  holdings
                                   thus causing a  disproportionate  change in the Fund's net asset value; (ii) the
                                   Fund's  cost of  leverage  may exceed the  return on the  underlying  securities
                                   acquired  with the proceeds of the  leverage,  thereby  diminishing  rather than
                                   enhancing  the return to  shareholders  and  generally  making the Fund's  total
                                   return to such  shareholders  more  volatile;  (iii) the Fund may be required to
                                   sell  investments in order to meet dividend or interest  payments on the debt or
                                   preferred  stock it has issued  when it may be  disadvantageous  to do so;  (iv)
                                   leveraging  through the issuance of preferred stock requires that the holders of
                                   the preferred  stock have class voting rights on various matters that could make
                                   it more  difficult  for the  holders  of the Fund's  common  stock to change the
                                   investment  objective or  fundamental  policies of the Fund, to convert it to an
                                   open-end fund or make certain other  changes;  and (v) the Fund may be forced to
                                   redeem  some  or all of the  Preferred  Shares  at  inopportune  times  due to a
                                   decline in market value of Fund investments.

                             |X|   Discount From Net Asset Value.  Common stock of closed-end  funds  frequently
                                   trade  at a  market  price  that is  less  than  the  value  of the  net  assets
                                   attributable  to those shares (a "discount").  The  possibility  that the Fund's
                                   shares  will trade at a discount  from net asset  value is a risk  separate  and
                                   distinct from the risk that the Fund's net asset value will  decrease.  The risk
                                   of  purchasing  shares of a  closed-end  fund that might  trade at a discount or
                                   unsustainable  premium is more  pronounced  for investors who wish to sell their
                                   shares in a  relatively  short  period  of time  because,  for those  investors,
                                   realization  of a gain  or  loss  on  their  investments  is  likely  to be more
                                   dependent  upon the  existence  of a premium  or  discount  than upon  portfolio
                                   performance.

                             |X|   Size of the  Fund.  As of  July  ___,  2005,  the  Fund  had  net  assets  of
                                   approximately  $____ million.  As a fund with a relatively small asset base, the
                                   Fund may be subject  to certain  operational  inefficiencies  including:  higher
                                   expense  ratio,  less coverage by analysts and the  marketplace in general which
                                   can  contribute  to a less  active  trading  market  for the  Fund's  shares and
                                   consequently  a wider  discount,  more limited  ability to attract new investors
                                   and/or take  advantage  of  investment  opportunities  and less  ability to take
                                   advantage of lower transaction costs available to larger investors.

                             |X|   Repurchase of the Fund's  Common Stock.  The Fund is authorized to repurchase
                                   its common  shares on the open  market when the shares are trading at a discount
                                   from  net  asset  value as  determined  by the  Board  from  time to  time.  The
                                   acquisition  of common  shares by the Fund will decrease the total assets of the
                                   Fund and, therefore,  have the effect of increasing the Fund's expense ratio and
                                   may  adversely  affect  the  ability  of the  Fund  to  achieve  its  investment
                                   objectives.  Furthermore,  the  acquisition  of  common  shares  by the Fund may
                                   require the Fund to redeem the  Preferred  Shares in order to  maintain  certain
                                   asset  coverage  requirements.  To the  extent  the Fund  may need to  liquidate
                                   investments to fund  repurchase of common  shares,  this may result in portfolio
                                   turnover which will result in additional expenses being borne by the Fund.



                             |X|   Dependence on Key Personnel. The Advisers are
                                   dependent upon the expertise of Stewart
                                   Horejsi in providing advisory services with
                                   respect to the Fund's investments. If the
                                   Advisers were to lose the services of Mr.
                                   Horejsi, their ability to service the Fund
                                   could be adversely affected. There can be no
                                   assurance that a suitable replacement could
                                   be found for Mr. Horejsi in the event of his
                                   death, resignation, retirement or inability
                                   to act on behalf of the Advisers.

                             |X|   Issuer Risk. The value of the Fund's
                                   portfolio may decline for a number of reasons
                                   which directly relate to the issuers of the
                                   securities in the portfolio, such as
                                   management performance, financial leverage
                                   and reduced demand for an issuer's goods and
                                   services.

                             |X|   Inflation Risk. Inflation risk is the risk
                                   that the value of assets or income from
                                   investments will be worth less in the future
                                   as inflation decreases the value of money. As
                                   inflation increases, the real value of the
                                   Fund's portfolio can decline.

                             |X|   Repurchase  Agreements.  The use of repurchase  agreements  involves  certain
                                   risks.  For example,  if the seller of securities  under a repurchase  agreement
                                   defaults on its obligation to repurchase the underlying securities,  as a result
                                   of bankruptcy or  otherwise,  the Fund will seek to dispose of such  securities,
                                   which action could involve costs or delays.  If the seller becomes insolvent and
                                   subject to liquidation or  reorganization  under applicable  bankruptcy or other
                                   laws,  the  Fund's  ability  to  dispose  of the  underlying  securities  may be
                                   restricted.  Finally,  it  is  possible  that  the  Fund  may  not  be  able  to
                                   substantiate its interest in the underlying securities.

                             |X|   Foreign Securities Risk. The Fund is permitted to invest in foreign securities.
                                   Investment in non-U.S. issuers may involve unique risks compared to investing in
                                   securities of U.S. issuers. These risks are more pronounced to the extent that the Fund
                                   invests a significant portion of its non-U.S. investments in one region or in the
                                   securities of emerging market issuers. These risks may include:

                                   o     Less information about non-U.S. issuers      
                                         or markets may be available due to less
                                         rigorous disclosure, accounting
                                         standards or regulatory practices.

                                   o     Many non-U.S. markets are smaller, less
                                         liquid and more volatile. In a changing
                                         market, the Advisers may not be able to
                                         sell the Fund's portfolio securities at
                                         times, in amounts and at prices they
                                         consider reasonable.

                                   o     Currency exchange rates or controls may
                                         adversely affect the value of the
                                         Fund's investments.

                                   o     The economies of non-U.S. countries may
                                         grow at slower rates than expected or
                                         may experience downturns or recessions.

                                   o     Withholdings and other non-U.S. taxes may decrease the Fund's return.

                             |X|   Currency  Risk. A portion of the Fund's  assets may be quoted or  denominated
                                   in  non-U.S.   currencies.   These  securities  may  be  adversely  affected  by
                                   fluctuations  in  relative  currency  exchange  rates  and by  exchange  control
                                   regulations.  The Fund's investment  performance may be negatively affected by a
                                   devaluation  of a  currency  in which  the  Fund's  investments  are  quoted  or
                                   denominated.  Further,  the Fund's  investment  performance may be significantly
                                   affected,  either  positively or negatively,  by currency exchange rates because
                                   the U.S.  dollar value of securities  quoted or denominated in another  currency
                                   will  increase or decrease in response to changes in the value of such  currency
                                   in relation to the U.S. dollar.

                             |X|   Sovereign   debt  risk.  An  investment  in  debt   obligations  of  non-U.S.
                                   governments  and  their  political  subdivisions   ("sovereign  debt")  involves
                                   special risks that are not present in corporate debt  obligations.  The non-U.S.
                                   issuer of the  sovereign  debt or the  non-U.S.  governmental  authorities  that
                                   control the repayment of the debt may be unable or unwilling to repay  principal
                                   or interest  when due, and the Fund may have limited  recourse in the event of a
                                   default.   During  periods  of  economic  uncertainty,   the  market  prices  of
                                   sovereign  debt may be more  volatile  than prices of debt  obligations  of U.S.
                                   issuers. In the past, certain non-U.S.  countries have encountered  difficulties
                                   in  servicing  their  debt  obligations,  withheld  payments  of  principal  and
                                   interest  and declared  moratoria  on the payment of  principal  and interest on
                                   their sovereign debt.



                             |X|   Liquidity Risk.  Although the Fund invests  primarily in securities traded on
                                   national  exchanges,  it may invest in less liquid assets from time to time that
                                   are not  readily  marketable  and may be  subject  to  restrictions  on  resale.
                                   Illiquid  securities  may be more  difficult  to value or may  impair the Fund's
                                   ability to realize the full value of its assets in the event of a  voluntary  or
                                   involuntary  liquidation  of such  assets  and thus may cause a  decline  in the
                                   Fund's net asset value.  The Fund has no  limitation on the amount of its assets
                                   that may be  invested in  securities  which are not  readily  marketable  or are
                                   subject to restrictions  on resale,  although it may not invest more than 30% of
                                   the value of its total assets in  securities  which have been  acquired  through
                                   private  placement.  In  certain  situations,   the  Fund  could  find  it  more
                                   difficult to sell such securities at desirable times and/or prices.

                             |X|   Market  Disruption  Risk.  The  terrorist  attacks  in the  United  States on
                                   September 11, 2001 had a disruptive effect on the securities  markets.  The Fund
                                   cannot  predict  the  effects  of  similar  events  in the  future  on the  U.S.
                                   economy.  These  terrorist  attacks and  related  events,  including  the war in
                                   Iraq, its  aftermath,  and  continuing  occupation of Iraq by coalition  forces,
                                   have led to  increased  short-term  market  volatility  and may  have  long-term
                                   effects on U.S. and world  economies  and markets.  A similar  disruption of the
                                   financial  markets could impact interest  rates,  auctions,  secondary  trading,
                                   ratings,  credit risk,  inflation  and other  factors  relating to the Preferred
                                   Shares.

                             |X|   Anti-Takeover  Provisions  Risk.  The  Fund's  charter  (the  "Charter")  and
                                   bylaws (the "Bylaws")  include  provisions that could limit the ability of other
                                   entities or persons to acquire  control of the Fund or to change the composition
                                   of its Board.  Such  provisions  could limit the ability of shareholders to sell
                                   their shares at a premium over prevailing  market prices by discouraging a third
                                   party from  seeking  to obtain  control of the Fund.  These  provisions  include
                                   advance notice requirements for shareholder  proposals and super-majority voting
                                   requirements for certain  transactions with affiliates,  open-ending the Fund or
                                   a merger, liquidation, asset sale or similar transaction.

Investment          The  Fund  is  co-advised  by  Boulder
Advisers            Investment  Advisers,  LLC and Stewart  West Indies  Trading
                    Company,   Ltd.  d/b/a  Stewart  Investment  Advisers.   The
                    Advisers have been providing  advisory  services to the Fund
                    since January 2002,  and to Boulder Total Return Fund,  Inc.
                    since March 1999. As of July ___,  2005,  the Advisers had a
                    total of $_____ million in assets under management. The Fund
                    pays the  Advisers  an  aggregate  monthly fee at the annual
                    rate of 1.25% of the Fund's average  monthly net asset value
                    (the  "Adviser   Fee").   The   liquidation   value  of  any
                    outstanding  preferred stock (e.g., the Preferred Shares) is
                    included in determining  the Fund's net asset value on which
                    fees are  calculated.  The Fund's  co-administrator  is Fund
                    Administrative  Services, LLC ("FAS" or the "Administrator")
                    which is an affiliate of the Advisers.

Trading  Market     The  Preferred  Shares  will  not be  listed  on an
                    exchange.  Instead, you may buy or sell the Preferred Shares
                    at an auction that normally is held every  twenty-eight days
                    by   submitting   orders   to  a   Broker-Dealer   or  to  a
                    broker-dealer  that has  entered  into a separate  agreement
                    with  a   Broker-Dealer.   In  addition  to  the   auctions,
                    Broker-Dealers  and  other  broker-dealers  may  maintain  a
                    secondary  trading market in the Preferred Shares outside of
                    auctions  but may  discontinue  this  activity  at any time.
                    There is no assurance  that a secondary  market will provide
                    holders of Preferred Shares with liquidity. You may transfer
                    Preferred  Shares  outside of auctions  only to or through a
                    Broker-Dealer  or a  broker-dealer  that has entered  into a
                    Broker-Dealer  Agreement,  or  other  persons  as  the  Fund
                    permits.

Dividends and Rate  The table below shows the dividend  rate,
Period              the  dividend  payment  date and the  number of days for the
                    initial rate period of the Preferred  Shares offered in this
                    prospectus.  For  subsequent  rate  periods,  the  Preferred
                    Shares  will pay  dividends  based on a rate set at auctions
                    normally  held every 28 days. In most  instances,  dividends
                    are payable on the first  business day  following the end of
                    the rate period.

                    The  rate  set  at  auction  will  not  exceed  the  maximum
                    applicable  rate. The dividend payment date for special rate
                    periods will be set out in the notice  designating a special
                    rate period.

                    Dividends on the Preferred  Shares will be  cumulative  from
                    the date the  Preferred  Shares are first issued and will be
                    paid out of legally available funds.






                                                       
Initial Dividend Rate   Dividend Payment        Subsequent      Number of Days in Initial Rate
                        Date for Initial Rate   Dividend        Period
                        Period                  Payment Day

_________________%      ____________,2005       __________      ____________



                    The Fund  may,  subject  to  certain  conditions,  designate
                    special rate periods of more than 28 days.  The Fund may not
                    designate a special rate period unless  sufficient  clearing
                    bids were made in the most recent  auction for the Preferred
                    Shares. In addition, full cumulative dividends,  any amounts
                    due with respect to mandatory redemptions and any additional
                    dividends  payable  prior to such date must be paid in full.
                    The Fund also must have received  confirmation  from Moody's
                    and Fitch or any substitute  rating agency that the proposed
                    special rate period will not adversely  affect such agency's
                    then-current  rating on the  Preferred  Shares  and the lead
                    Undewriter   designated   by  the  Fund,   initially   [Lead
                    Underwriter], must not have objected to the declaration of a
                    special  rate   period.   See   "Description   of  Preferred
                    Shares--Dividends  and Rate  Periods"  and  "Designation  of
                    Special Rate Periods" and "The Auction".

                    The  Preferred  Shares will entitle their holders to receive
                    cash  dividends  at a rate per  annum  that may vary for the
                    successive  dividend periods for such shares. The applicable
                    rate for a particular  dividend period will be determined by
                    an  auction   conducted  on  the  business  day  immediately
                    preceding  the start of such  dividend  period.  A "business
                    day" is a day on  which  the NYSE is open  for  trading  and
                    which is not a Saturday,  Sunday or other day on which banks
                    in New  York  City are  authorized  or  obligated  by law to
                    close.

                    Determination  of Maximum  Applicable Rate.  Generally,  the
                    applicable  rate for any  regular  dividend  period  for the
                    Preferred   Shares   will  not  be  more  than  the  maximum
                    applicable rate. The maximum  applicable rate will depend on
                    the credit rating  assigned to the  Preferred  Shares and on
                    the duration of the dividend period.  The maximum applicable
                    rate will be the higher of the applicable  percentage of the
                    reference rate or the  applicable  spread plus the reference
                    rate.  The  reference  rate  (the  "Reference  Rate") is the
                    applicable   LIBOR  Rate  (as  defined  in  "Description  of
                    Preferred   Shares   -   Dividends   and  Rate   Periods   -
                    Determination  of Maximum  Applicable  Rate") for a dividend
                    period  of fewer  than 365 days or the  applicable  Treasury
                    Index Rate (as defined in "Description of Preferred Shares -
                    Dividends  and  Rate  Periods  -  Determination  of  Maximum
                    Applicable Rate") for a dividend period of 365 days or more.
                    The  applicable   percentage  or  applicable  spread  as  so
                    determined  is further  subject  to upward but not  downward
                    adjustment in the discretion of the Board after consultation
                    with the lead Underwriter,  initially [Lead Underwriter]. In
                    the  case  of  a  special  dividend   period,   the  maximum
                    applicable  rate will be specified by the Fund in the notice
                    of the special  dividend  period for such  special  dividend
                    payment period.

                    The applicable percentage and spread are as follows:



                       Applicable Percentage Payment Table

             Credit Ratings                Applicable Percentage   Applicable Spread

        Moody's         Fitch
                                                          
        Aaa             AAA                125%                    1.25%
        Aa3 to Aa1      AA- to AA+         150%                    1.50%
        A3 to A1        A- to A+           200%                    2.00%
        Baa3 to Baa1    BBB- to BBB+       250%                    2.50%
        Ba1 and Lower   BB+ and lower      300%                    3.00%


                    There  is no  minimum  applicable  rate  in  respect  of any
                    dividend  period.  See  "Description  of Preferred  Shares -
                    Dividends and Rate Periods."

                    Assuming  the  Fund   maintains  a  Aaa/AAA  rating  on  the
                    Preferred  Shares,  the  practical  effect of the  different
                    methods used to  calculate  the maximum  applicable  rate is
                    shown in the table below:


                                                       
Reference Rate  Maximum                 Maximum Applicable      Method used to
                Applicable Rate         Rate Using the          Determine the
                Using the               Applicable spread       Maximum
                Applicable                                      Applicable Rate
                ercentage

1%              1.25%                   2.25%                   Spread
2%              2.50%                   3.25%                   Spread
3%              3.75%                   4.25%                   Spread
4%              5.00%                   5.25%                   Spread
5%              6.25%                   6.25%                   Either
6%              7.50%                   7.25%                   Percentage




                    Prior to each dividend payment date, the Fund is required to
                    deposit  with the  Auction  Agent  sufficient  funds for the
                    payment of  declared  dividends.  The failure to make such a
                    deposit will result in the  cancellation  of any auction and
                    the dividend rate will be the maximum  applicable rate until
                    such failure to deposit is cured or, if not timely cured,  a
                    non-payment  rate of 300% of the  Reference  Rate.  The Fund
                    does not intend to establish any reserves for the payment of
                    dividends.


                 
Ratings             The Preferred Shares are expected to receive ratings
                    of Aaa from Moody's and AAA from Fitch. These ratings are an
                    assessment of the capacity and  willingness  of an issuer to
                    pay  preferred  stock  obligations.  The  ratings  are not a
                    recommendation  to  purchase,  hold  or sell  the  Preferred
                    Shares  inasmuch as the rating does not comment as to market
                    price or suitability for a particular investor.  The ratings
                    also  do  not  address  the  likelihood  that  an  owner  of
                    Preferred  Shares  will be able to sell  such  shares  in an
                    auction or otherwise.  The ratings are based on  information
                    obtained from the Fund and other sources. The ratings may be
                    changed,  suspended,  or withdrawn  in the rating  agencies'
                    discretion as a result of changes in, or the  unavailability
                    of, such information. See "Description of Preferred Shares -
                    Rating Agency Guidelines and Asset Coverage."

Redemption          The Fund is required to redeem  Preferred  Shares
                    if the Fund does not meet the asset  coverage ratio required
                    by the 1940 Act,  or to  correct a failure  to meet a rating
                    agency   guideline  in  a  timely   manner.   The  Fund  may
                    voluntarily  redeem Preferred  Shares,  in whole or in part,
                    subject to certain conditions. See "Description of Preferred
                    Shares - Redemption" and  "Description of Preferred Shares -
                    Rating Agency Guidelines and Asset Coverage."

Asset  Maintenance  Under the Articles  Supplementary,  which
                    establishes  and fixes the  rights  and  preferences  of the
                    Preferred  Shares,  the Fund must maintain asset coverage of
                    the  Preferred  Shares as required  by the rating  agency or
                    agencies rating the Preferred Shares (the "Preferred  Shares
                    Basic  Maintenance  Amount").  The  Preferred  Shares  Basic
                    Maintenance   Amount  is  the  sum  of  (a)  the   aggregate
                    liquidation   preference  of  the   Preferred   Shares  then
                    outstanding,   together  with  the   aggregate   liquidation
                    preference  on any other series of  preferred  shares of the
                    Fund (plus  redemption  premium,  if any),  and (b)  certain
                    accrued and projected dividend and other payment obligations
                    of  the  Fund.  Moody's  and  Fitch  have  each  established
                    separate guidelines for calculating  discounted value of the
                    Fund's assets for purposes of this asset  coverage  test. To
                    the extent any particular portfolio holding does not satisfy
                    a  rating  agency's  guidelines,  all  or a  portion  of the
                    holding's  value will not be included in the rating agency's
                    calculation  of  discounted  value.  The  Moody's  and Fitch
                    guidelines also impose certain diversification  requirements
                    on the Fund's portfolio.

                    As  required  by the 1940 Act,  the Fund must also  maintain
                    asset  coverage of at least 200% with respect to outstanding
                    senior  securities that are preferred  stock,  including the
                    Preferred  Shares  (the  "1940  Act  Preferred  Share  Asset
                    Coverage").

                    In the event that the Fund does not satisfy  these  coverage
                    tests,  some or all of the Preferred  Shares will be subject
                    to  mandatory  redemption.  See  "Description  of  Preferred
                    Shares - Redemption."

                    Based on the composition of the Fund's  portfolio as of July
                    __, 2005,  the asset  coverage of the Preferred  Shares,  as
                    measured  pursuant to the 1940 Act,  would be  approximately
                    ____%  if  the  Fund   were  to   issue   Preferred   Shares
                    representing   approximately  ___%  of  the  Fund's  managed
                    assets.

Mandatory           If the Preferred Shares Basic  Maintenance  Amount
Redemption          or the  1940  Act  Preferred  Share  Asset  Coverage  is not
                    maintained  or restored as specified  herein,  the Preferred
                    Shares will be subject to mandatory redemption, out of funds
                    legally  available  therefore,  at the mandatory  redemption
                    price of $25,000 per share plus an amount equal to dividends
                    thereon (whether or not earned or declared)  accumulated but
                    unpaid to the date fixed for redemption. Any such redemption
                    will be limited to the minimum  number of  Preferred  Shares
                    necessary to restore the Preferred Shares Basic  Maintenance
                    Amount or the 1940 Act Preferred  Share Asset  Coverage,  as
                    the case may be. The Fund's ability to make such a mandatory
                    redemption  may be restricted by the  provisions of the 1940
                    Act.



Optional            The Preferred  Shares are  redeemable at the option
Redemption          of the Fund, as a whole or in part, on any dividend  payment
                    date  (except  on an  initial  dividend  payment  date  or a
                    special  dividend  period with respect to which the Fund has
                    agreed  not  to  redeem  Preferred  Shares   voluntarily  (a
                    "Non-Call  Period"))  at the  optional  redemption  price of
                    $25,000 per share, plus an amount equal to dividends thereon
                    (whether or not earned or declared)  accumulated  but unpaid
                    to the date fixed for redemption  plus the premium,  if any,
                    resulting from the  designation of a Premium Call Period.  A
                    "Premium  Call Period" is a period  during  which  Preferred
                    Shares  are only  redeemable  at the option of the Fund at a
                    price per share equal to $25,000 plus accumulated but unpaid
                    dividends, plus a premium.

Liquidation         The  liquidation  preference  for the Preferred
Preference          Shares will be $25,000 per share plus accumulated but unpaid
                    dividends, if any, whether or not declared. See "Description
                    of Preferred Shares - Liquidation."

Voting Rights       The holders of preferred shares, including the
                    Preferred Shares, voting as a separate class, have the right
                    to elect at least two  Directors  of the Fund at all  times.
                    Such  holders also have the right to elect a majority of the
                    Directors  in the event  that two years'  dividends  on such
                    preferred  shares are unpaid.  In each case,  the  remaining
                    Directors  will be elected  by holders of common  shares and
                    preferred  shares,  including the Preferred  Shares,  voting
                    together as a single class. The holders of preferred shares,
                    including  the  Preferred  Shares,  will vote as a  separate
                    class or classes on certain other matters required under the
                    Articles  Supplementary,  the 1940 Act and Maryland law. See
                    "Description of Preferred Shares - Voting Rights."

Auction  Procedure  Unless  otherwise  permitted by the Fund,
                    investors  may only  participate  in auctions  through their
                    Broker-Dealers.  The process for  determining the applicable
                    rate on the  Preferred  Shares  described in this section is
                    referred to as the "Auction  Procedures" and each setting of
                    the applicable rate is referred to as an "auction."

                    Prior to the  submission  deadline on each auction date each
                    customer of a Broker-Dealer  who is listed on the records of
                    that Broker-Dealer (or, if applicable, the Auction Agent) as
                    a beneficial  owner of such shares may submit the  following
                    types  of   orders   with   respect   to   shares   to  that
                    Broker-Dealer:

                    1. Hold Order - indicating its desire to hold shares without
                    regard to the applicable rate for the next dividend period.

                    2. Bid -  indicating  its  desire  to  purchase  or hold the
                    indicated  number  of  shares  at  $25,000  per share if the
                    applicable  rate for shares for the next dividend  period is
                    not less than the rate  specified in the bid. A bid order by
                    an existing  holder will be deemed an  irrevocable  offer to
                    sell shares at $25,000 per share if the applicable  rate for
                    shares for the next dividend period is less than the rate or
                    spread specified in the bid.

                    3. Sell  Order -  indicating  its  desire to sell  shares at
                    $25,000 per share without regard to the applicable  rate for
                    the next dividend period.

                    A beneficial  owner may submit  different types of orders to
                    its Broker-Dealer with respect to different Preferred Shares
                    then held by the  beneficial  owner.  A beneficial  owner of
                    such shares that submits its bid with respect to such shares
                    to its  Broker-Dealer  having a rate higher than the maximum
                    applicable  rate for such shares on the auction date will be
                    treated   as   having   submitted   a  sell   order  to  its
                    Broker-Dealer.  A  beneficial  owner of shares that fails to
                    submit an order to its  Broker-Dealer  with  respect to such
                    shares will  ordinarily  be deemed to have  submitted a hold
                    order  with  respect  to such  shares to its  Broker-Dealer.
                    However,  if a beneficial owner of shares fails to submit an
                    order with respect to such shares to its  Broker-Dealer  for
                    an auction  relating  to a special  dividend  period of more
                    than ___ days, such beneficial  owner will be deemed to have
                    submitted  a sell order to its  Broker-Dealer.  A sell order
                    constitutes  an  irrevocable  offer  to sell  the  Preferred
                    Shares  subject to the sell order.  A beneficial  owner that
                    offers  to  become  the   beneficial   owner  of  additional
                    Preferred Shares is, for purposes of such offer, a potential
                    holder as discussed below.



                    A  potential  holder is a customer of a  Broker-Dealer  that
                    either (i) is not a beneficial owner of Preferred Shares but
                    wishes to purchase  shares or (ii) is a beneficial  owner of
                    Preferred Shares that wishes to purchase  additional shares.
                    A potential  holder may submit bids to its  Broker-Dealer in
                    which it offers to  purchase  shares at $25,000 per share if
                    the applicable  rate for shares for the next dividend period
                    is not  less  than the  specified  rate in such  bid.  A bid
                    placed by a  potential  holder of shares  specifying  a rate
                    higher  than the maximum  applicable  rate for shares on the
                    auction date will not be accepted.

                    The  Broker-Dealers  in turn will submit the orders of their
                    respective customers who are beneficial owners and potential
                    holders  to  the  Auction  Agent.  The  Broker-Dealers  will
                    designate  themselves  (unless  otherwise  permitted  by the
                    Fund) as  existing  holders  of  shares  subject  to  orders
                    submitted or deemed submitted to them by beneficial  owners.
                    They will  designate  themselves  as  potential  holders  of
                    shares  subject  to orders  submitted  to them by  potential
                    beneficial owners. However, neither the Fund nor the Auction
                    Agent will be responsible for a  Broker-Dealer's  failure to
                    comply with these Auction Procedures.  Any order placed with
                    the Auction Agent by a  Broker-Dealer  as or on behalf of an
                    existing  holder or a  potential  holder will be treated the
                    same  way  as an  order  placed  with a  Broker-Dealer  by a
                    beneficial owner or potential  beneficial owner.  Similarly,
                    any  failure  by a  Broker-Dealer  to submit to the  Auction
                    Agent  an  order  for  any  Preferred  Shares  held by it or
                    customers  who are  beneficial  owners  will be treated as a
                    beneficial owner's failure to submit to its Broker-Dealer an
                    order  in  respect  of  Preferred   Shares  held  by  it.  A
                    Broker-Dealer  may also submit  orders to the Auction  Agent
                    for its own  account  as an  existing  holder  or  potential
                    holder, provided it is not an affiliate of the Fund.

                    There are sufficient  clearing bids for shares in an auction
                    if the  number of shares  subject to bids  submitted  to the
                    Auction Agent by  Broker-Dealers  for potential holders with
                    rates  or  spreads  equal  to  or  lower  than  the  maximum
                    applicable  rate is at least  equal to or exceeds the sum of
                    the number of shares  subject to sell  orders and the number
                    of shares subject to bids specifying rates or spreads higher
                    than  the  maximum   applicable  rate  submitted  or  deemed
                    submitted  to  the  Auction  Agent  by  Broker-Dealers   for
                    existing holders.  If there are sufficient clearing bids for
                    shares,   the  applicable  rate  for  shares  for  the  next
                    succeeding  dividend  period thereof will be the lowest rate
                    specified in the submitted  bids which,  taking into account
                    such rate and all lower rates bid by Broker-Dealers as or on
                    behalf of existing  holders  and  potential  holders,  would
                    result in existing holders and potential  holders owning the
                    shares available for purchase in the auction.

                    If there are not  sufficient  clearing bids for such shares,
                    the applicable rate for the next dividend period will be the
                    maximum applicable rate on the auction date. However, if the
                    Fund has  declared a special  dividend  period and there are
                    not  sufficient  clearing  bids,  the  election of a special
                    dividend  period will not be  effective  and the  applicable
                    rate for the next rate period will be the same as during the
                    current rate period.  If there are not  sufficient  clearing
                    bids,  beneficial  owners  of  Preferred  Shares  that  have
                    submitted  or are deemed to have  submitted  sell orders may
                    not be able to sell in the  auction  all  shares  subject to
                    such  sell  orders.  If all of  the  applicable  outstanding
                    Preferred  Shares are the subject of submitted  hold orders,
                    then  the  dividend   period   following  the  auction  will
                    automatically  be the same  length as the  minimum  dividend
                    period and the applicable  rate for the next dividend period
                    will  be 90% of  the  Reference  Rate  on  the  date  of the
                    applicable auction.

                    The  Auction  Procedures  include a pro rata  allocation  of
                    shares for purchase and sale which may result in an existing
                    holder continuing to hold or selling,  or a potential holder
                    purchasing,  a number of Preferred  Shares that is different
                    than the number of shares  specified  in its  order.  To the
                    extent  the   allocation   procedures   have  that   result,
                    Broker-Dealers  that have designated  themselves as existing
                    holders or potential  holders in respect of customer  orders
                    will be required to make  appropriate  pro rata  allocations
                    among their respective customers.

                    The  following  is a  simplified  example  of how a  typical
                    auction  works.  Assume that the Fund has 1,000  outstanding
                    Preferred  Shares  and  three  current  holders.  The  three
                    current  holders and three  potential  holders submit orders
                    through broker-dealers at the auction:






        Holder                          Goal                            Action

                                                          
Current Holder A...........     Owns 500 shares, wants to       Bid order of 4.1% rate for
                                sell all 500 shares if          all 500 shares
                                auction rate is less than
                                4.1%

Current Holder B...........     Owns 300 shares, wants to       Hold order - will take the
                                hold                            auction rate

Current Holder C...........     Owns 200 shares, wants to       Bid order of 3.9% rate for
                                sell all 200 shares if          all 200 shares
                                auction rate is less than
                                3.9%

Current Holder D...........     Wants to buy 200 shares         Places order to buy at or
                                                                above 4.0%

Current Holder E...........     Wants to buy 300 shares         Places order to buy at or
                                                                above 3.9

Current Holder F...........     Wants to buy 200 shares         Places order to buy at or
                                                                above 4.1%


                    The  lowest  dividend  rate  that  will  result in all 1,000
                    Preferred Shares in the above example  continuing to be held
                    is 4.0% (the offer by D). Therefore,  the dividend rate will
                    be 4.0%.  Current holders B and C will continue to own their
                    shares.  Current  holder A will sell its shares  because A's
                    dividend  rate  bid  was  higher  than  the  dividend  rate.
                    Potential  holder D will buy 200 shares and potential holder
                    E will buy 300  shares  because  their bid rates  were at or
                    below the dividend rate. Potential holder F will not buy any
                    shares because its bid rate was above the dividend rate.


                 
Federal  Income     The Fund intends to take the  position  that
Taxation            under  present law,  the  Preferred  Shares will  constitute
                    stock  of  the  Fund.  Distributions  with  respect  to  the
                    Preferred Shares (other than  distributions in redemption of
                    the Preferred  Shares that are treated as exchanges of stock
                    under Section 302(b) of the Code) will constitute  dividends
                    to the extent of the Fund's current or accumulated  earnings
                    and  profits  as  calculated  for U.S.  federal  income  tax
                    purposes.   The  dividends  generally  will  be  taxable  as
                    ordinary income.  Distributions of net capital gain that are
                    designated  by the Fund as capital gain  dividends,  if any,
                    however,  will be treated as long-term capital gains without
                    regard to the length of time the shareholder has held shares
                    of the Fund.



Administrator, Custodian,    Fund Administrative Services, LLC serves as the Fund's
Transfer Agent, Registrar    co-administrator. Under its Administration Agreement
and Dividend Disbursing      with the Fund, FAS provides certain administrative and
Agent                        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 Administration  Agreement,  FAS receives a monthly
                    fee  calculated  at an annual  rate of 0.20% of the value of
                    the Fund's  average  monthly net assets up to $250  million;
                    0.18% of the Fund's  average  monthly net assets on the next
                    $150 million;  and 0.15% on the value of the Fund's  average
                    monthly assets over $400 million.  FAS has agreed to waive a
                    portion  of its fee in order to limit the  Fund's  the total
                    monthly administration  expenses (including  administration,
                    co-administration,  transfer  agent and  custodian  fees) to
                    0.30% of the Fund's average  monthly net assets.  The equity
                    owners of FAS are Evergreen Atlantic, LLC and the Lola Brown
                    Trust  No.  1B,  each  of  which  is  considered  to  be  an
                    "affiliated  person"  of the Fund as that term is defined in
                    the 1940 Act.

                    Investors Bank & Trust Company  ("Investors Bank") serves as
                    the Fund's  co-administrator and custodian.  As compensation
                    for  its   services,   Investors   Bank   receives   certain
                    out-of-pocket  expenses,  transaction  fees and  asset-based
                    fees of ___%, which are accrued daily and paid monthly.

                    PFPC Inc. ("PFPC"), an indirect,  majority-owned  subsidiary
                    of PNC Financial  Services Group, Inc., serves as the Fund's
                    transfer agent,  dividend-paying agent and registrar for the
                    Fund's common stock. 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 will serve as Auction
                    Agent,  transfer agent,  dividend paying agent and registrar
                    for the Preferred Shares.




                        FINANCIAL HIGHLIGHTS (UNAUDITED)

The  table  below  sets  forth  selected  financial  data,  including  operating
performance  data,  total investment  returns,  ratios to average net assets and
other  supplemental  data,  for a share of the Fund's  common stock  outstanding
throughout the period presented.  The per share operating performance and ratios
for the period  ending June 30, 2001 and prior years were  audited by the Fund's
previous independent  registered public accounting firm. The per share operating
performance  and ratios for the periods ended June 30, 2002,  2003 and 2004 were
audited by _________,  the Fund's independent registered public accounting firm,
as stated in their report which is  incorporated by reference into the Statement
of  Additional  Information.   The  following  information  should  be  read  in
conjunction  with  the  Financial  Statements  and  Notes  thereto,   which  are
incorporated by reference into the Statement of Additional Information.

                             [INSERT FINANCIAL DATA]

The information  above  represents the operating  performance  data for a common
share  outstanding,  total investment  return,  ratios to average net assets and
other  supplemental  data for the period  indicated.  This  information has been
determined based upon financial information provided in the financial statements
and market value data for the Fund's common shares.

As of July  ___,  2005,  the Fund had a bank  line of  credit  in the  amount of
$20,000,000  (defined  above as the  "Bank  Debt")  of which it had  drawn  down
$20,000,000. The Bank Debt is used for investment and will be repaid entirely in
conjunction with the Offering out of the proceeds of the Offering. The following
table depicts the outstanding Bank Debt as of July ___, 2005 and the end of each
fiscal year within the most recent 10 years  during  which the Fund had the Bank
Debt or any other bank debt outstanding.



                 Year                     Total Amount Outstanding Exclusive           Asset Coverage Per Unit
                                                of Treasury Securities
                                                                                          

              11/30/2003                              $20,000,000                               4.79
              11/30/2004                              $18,000,000                               5.80
               6/30/2005                              $20,000,000                               5.41



                                    THE FUND

The  Fund  is  a  non-diversified,   closed-end  management  investment  company
organized as a Maryland  corporation in October 1972.  From its  inception,  and
prior to April 26,  2002,  the Fund was named USLife  Income Fund,  Inc. and was
virtually 100% invested in corporate  bonds. In January 2002, the Fund's largest
shareholder,  the Ernest Horejsi Trust No. 1B,  succeeded in replacing the Board
of  Directors  with a slate of its  nominees.  Soon  thereafter,  in April 2002,
shareholder  approved  changing the Fund's  investment  objective  and corporate
name, changing the Fund's classification from diversified to non-diversified and
changing  or  eliminating  a  number  of  the  Fund's   fundamental   investment
restrictions.  Thereafter,  the Fund began the process of  liquidating  its bond
portfolio  and started  investing  in common  equities  consistent  with the new
investment  objective.  As of July ___,  2005,  the Fund had none of its  assets
invested in bonds.

As of July ___, 2005, the Fund had _________ shares of common stock outstanding.
The Fund's  common  shares  are  traded on the NYSE under the symbol  "BIF." The
average  weekly trading volume of the Fund's common stock on the NYSE during the
period from ____________ through  _____________ was ____shares.  As of July ___,
2005, the net assets of the Fund were approximately $___________.

The following  provides  information about the Fund's  outstanding  shares as of
_________, 2005:


                                                               
        Title of class          Amount          Amount held by          Amount
                                Authorized      the Fund for its        Outstanding
                                                Account

        Common Shares........   240,000         0

        Preferred Shares

        Preferred Shares.....   1,000           0                       0



                                 USE OF PROCEEDS

The net  proceeds  of the  Offering  will be  approximately  $24,________  after
payment of offering  expenses  (estimated  to be  $_______)  and the sales load.
Approximately  $_____ of the net  proceeds  will be used to redeem the Bank Debt
(which has an  interest  rate of __% and  matures on  demand),  with the balance
being invested in accordance with the Fund's  investment  objective and policies
as  soon  as  practicable.  We  anticipate  that  we  will  be  able  to  invest
substantially all of such net proceeds within  approximately  three months after
completion of this offering.  Pending such investment,  we anticipate  investing
the  proceeds in  short-term  securities  issued by the U.S.  government  or its
agencies or instrumentalities  or in high quality,  short-term or long-term debt
obligations or money market instruments.



                           CAPITALIZATION (UNAUDITED)

The Fund's  Charter  authorizes  the  issuance of  250,000,000  shares of common
stock,  par value  $0.01 per  share.  In 2002,  Fund  shareholders  approved  an
amendment to the Fund's Charter which authorizes the Board,  without shareholder
approval, to increase the Fund's authorized capital. Pursuant to such amendment,
and in connection with a rights offering in 2002, the Board resolved to increase
the authorized capital of the Fund to its current level.

The  following  table sets forth the  capitalization  of the Fund as of July __,
2005,  and as adjusted to give effect to the  issuance of the  Preferred  Shares
offered  hereby  assuming  the  Fund  issues  [1,000 ] of the  Preferred  Shares
representing  approximately [ ] of the Fund's total assets (including  estimated
offering expenses of $[ ] and a sales load of $[_____] per Preferred Share). The
common shareholders' paid in capital is charged with the cost of issuance of the
Preferred Shares.



                                                                Actual                  As Adjusted
                                                                                  

Preferred Shares, $0.01 par value, $25,000 stated
value per share, at liquidation value, including
dividends payable; _______ shares authorized (no
shares issued); 1,000 shares issues, as adjusted             $___________               $___________

Shareholder's Equity:
   
   Common shares, $0.01 par value per share; ______
   shares authorized, _________ shares outstanding
   (1)                                                       $___________               $___________

   Undistributed net investment income                       $___________               $___________

   Accumulated net realized gain/loss on investments         $___________               $___________

   Net unrealized appreciation/depreciation on
   investments                                               $___________               $___________

   Net assets attributable to common shares                  $___________               $___________

   Net assets, plus liquidation preferences of
   Preferred Shares                                          $___________               $___________


(1) None of these outstanding shares are held by or for the account of the Fund.


                        INVESTMENT OBJECTIVE AND POLICIES

INVESTMENT OBJECTIVE.  The Fund's investment objective is total return. The Fund
seeks to produce both income and long-term capital  appreciation by investing in
a portfolio of equity and debt securities.  The Fund invests primarily in common
stocks,  including  dividend  paying  common  stocks  such as  those  issued  by
utilities,  REITs and  closed-end  RICs.  The Fund also  invests in fixed income
securities such as U.S. government  securities,  preferred stocks and bonds. The
Fund invests  primarily in securities  of  U.S.-based  companies and to a lesser
extent in foreign equity securities and sovereign debt, in each case denominated
in foreign  currency.  The Fund has no  restrictions on its ability to invest in
foreign securities. The Fund is concentrated in REITs which means it must invest
more than 25% of its total  assets in REITs  and  companies  in the real  estate
industry.  No assurance  can be given that the Fund will achieve its  investment
objective.

INVESTMENT  POLICIES.  The Fund is a  "non-diversified"  investment  company, as
defined in the 1940 Act,  which means that it is  permitted to invest its assets
in a more limited number of issuers than "diversified"  investment companies.  A
diversified  company may not,  with respect to 75% of its total  assets,  invest
more than 5% of its total assets in the securities of any one issuer and may not
own more  than  10% of the  outstanding  voting  securities  of any one  issuer.
However,  pursuant to the requirements of Subchapter M of the Code, (A) not more
than 25% of the Fund's  total  assets may be invested in  securities  of any one
issuer (other than U.S.  government  securities  and RICs) or of any two or more
issuers  controlled  by the Fund  which may be deemed to be engaged in the same,
similar  or related  trades or  businesses,  and (B) with  respect to 50% of the
total value of the Fund's  portfolio,  (i) the Fund must limit to 5% the portion
of its assets  invested in the  securities  of a single  issuer (other than U.S.
government  securities and RICs), and (ii) the Fund may not own more than 10% of
the outstanding voting securities of any one issuer (other than U.S.  government
securities  and  RICs).  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  "non-diversified"  fund. As a result,  the Fund may be
subject  to a greater  risk of loss than a  diversified  fund or a fund that has
diversified 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 large Fund holdings.



As a matter of investment policy, the Fund is concentrated in REITs, which means
it must,  under  normal  market  conditions,  invest  more than 25% of its total
assets in REITs or companies in the real estate  industry.  The Fund must obtain
shareholder  approval  prior to changing this policy.  The portion of the Fund's
assets  invested  in REITs and such  other  companies  will vary based on market
conditions,  but it is not  expected to exceed 50% of total  assets.  As of July
___, 2005,  ___% of the Fund's assets were invested in REITs.  Although the Fund
can invest in REITs of any size,  it  currently  intends to invest in REITs with
market capitalizations of greater than $500 million. Although the Fund generally
invests in U.S.  REITs,  such  companies  may invest  directly or  indirectly in
non-U.S.  properties, and the Fund may make direct investments in foreign REITs.
The Fund presently owns one foreign REIT security.

Under normal market  conditions,  the Fund intends to invest at least 80% of its
net assets in common stocks, primarily domestic common stocks and secondarily in
foreign   common   stocks   denominated   in   foreign   currencies.   The  term
"income-producing common stocks" includes RICs whose objective is income, REITs,
and other dividend-paying common stocks. Under the 1940 Act, the Fund must limit
to 10% the portion of its assets  invested in RICs,  and under  Subchapter M, no
single  investment  can  exceed 25% of the  Fund's  total  assets at the time of
purchase. These percentage limitations are calculated at the time of investment,
and the Fund is not  required  to dispose of assets if holdings  increase  above
these levels due to appreciation. As of July __, 2005, ___% of the Fund's assets
were invested in RICs,  and ___% of the Fund's assets were invested in Berkshire
Hathaway,  Inc. Class A shares.  The Fund has no  restrictions on its ability to
invest in foreign  securities.  As of July __, 2005,  ___% of the Fund's  assets
were invested in foreign securities.

The portion of the Fund's  assets that are not invested in common  stocks may be
invested  in  fixed  income  securities   (including   bonds,  U.S.   government
securities, notes, bills, debentures,  preferred stocks, convertible securities,
bank  debt  obligations,  repurchase  agreements  and  short-term  money  market
obligations),  cash equivalents and income-producing common stocks. Under normal
circumstances,  the Fund will not have  more  than 10% of its  assets in cash or
cash equivalents.  The Fund may, for temporary  defensive  purposes,  allocate a
higher  portion of its assets to cash and cash  equivalents.  For this  purpose,
cash  equivalents  consist  of, but are not limited  to,  short-term  (less than
twelve months to maturity) U.S. government  securities,  certificates of deposit
and  other  bank  obligations,  investment  grade  corporate  bonds  other  debt
instruments and repurchase agreements.

The Fund is also subject to the following fundamental  policies,  which may only
be changed with shareholder approval. The Fund may not:

     1.   Issue any senior securities except as permitted under the 1940 Act.

     2.   Invest in the  securities  of  companies  conducting  their  principal
          business  activity in the same  industry  if,  immediately  after such
          investment, the value of its investments in such industry would exceed
          25% of the value of its total assets;  provided  that this  limitation
          will not apply to REITs or related  companies in the same  industry as
          REITs.

     3.   Participate  on a joint or a joint and  several  basis in any  trading
          account  in  securities,  except  that the  Fund  may,  to the  extent
          permitted  by  rules,  regulations  or orders  of the  Securities  and
          Exchange Commission,  combine orders with others for the purchases and
          sales of securities in order to achieve the best overall execution.

     4.   Purchase or sell interests in oil, gas or other mineral exploration or
          development programs.

     5.   Purchase or sell real  estate,  except  that the Fund may  purchase or
          sell  interests  in REITs and  securities  secured  by real  estate or
          interests  therein issued by companies owning real estate or interests
          therein.

     6.   Purchase or sell commodities or commodity contracts.

     7.   Make loans other than  through  the  purchase  of debt  securities  in
          private  placements  and  the  loaning  of  portfolio   securities  as
          described under "Investment Objective and Policies".

     8.   Borrow money in an amount  exceeding the maximum  permitted  under the
          1940 Act.

     9.   Underwrite  securities of other  issuers,  except insofar as it may be
          deemed to be an underwriter in selling a portfolio  security which may
          require registration under the Securities Act of 1933, as amended (the
          "Securities Act").

     10.  Invest  more than 30% of the value of its total  assets in  securities
          which have been acquired through private placements.

     11.  Purchase or retain the  securities  of any  issuer,  if, to the Fund's
          knowledge,  those officers and directors of the Fund or its investment
          advisers who individually own beneficially  more than 1/2 of 1% of the
          outstanding securities of such issuer,  together own beneficially more
          than 5% of such outstanding securities.



     12.  Pledge,  mortgage or hypothecate  its assets except in connection with
          permitted borrowing and to the extent related to transactions in which
          the Fund is authorized to engage.

Except  for  the  Fund's  investment  objective,   industry   concentration  and
fundamental  investment  restrictions as described in this prospectus and in the
Statement of Additional  Information,  the percentage limitations and investment
policies  set forth in this  prospectus  can be  changed  by the  Board  without
shareholder approval.

OTHER INVESTMENT TECHNIQUES. The Fund may engage in other types of transactions,
including, but not limited to, investment in restricted and illiquid securities,
repurchase   agreements,   when-issued  and  forward  commitment   transactions,
borrowing,  securities lending and other transactions. For a description of such
types of  transactions,  see  "Investment  Policies and  Techniques"  and "Other
Investment Policies and Techniques" in the Statement of Additional Information.


                              INVESTMENT PHILOSOPHY

COMMON  STOCKS.  With respect to the Fund's common stock  portfolio  (other than
common stocks purchased  primarily for their  income-producing  potential),  the
Advisers use an "intrinsic  value" approach to selecting and managing the Fund's
assets.  The Advisers define intrinsic value as the discounted value of the cash
that can be taken out of a business during its remaining life.  Accordingly,  in
their  securities  selection  process,  the  Advisers  put  primary  emphasis on
analysis of balance  sheets,  cash  flows,  the  quality of  management  and its
ability to  efficiently  and  effectively  allocate  capital,  various  internal
returns which indicate  profitability,  and the relationships that these factors
have to the price of a given security.  The intrinsic value approach is based on
the belief that the securities of certain  companies may sell at a discount from
the Advisers'  estimate of such companies'  "intrinsic value". The Advisers will
attempt to identify and invest in such  securities,  with the  expectation  that
such value discount will narrow over time and thus provide capital  appreciation
for the Fund. When the Fund makes an investment in common stock of an issuer, it
will likely make a significant  investment  and typically  hold such stock for a
long period of time. Over time, the Fund believes that value investing  produces
superior total returns.

FIXED INCOME  INVESTMENTS.  In seeking its total return objective,  the Fund may
invest a portion of its assets in U.S. government securities,  preferred stocks,
bonds and other income producing securities. In selecting such investments,  the
Advisers  consider,   among  other  things,  current  yield,  liquidity,   price
variability and the underlying  fundamental  characteristics of the issuer, with
particular emphasis on debt to equity and debt coverage ratios.

BONDS. Prior to April 26, 2002, the Fund was called USLIFE Income Fund, Inc. and
was  virtually  100%  invested in  corporate  bonds.  Since the Fund changed its
investment  objective on April 26, 2002, the Advisers have liquidated all of the
Fund's  bond  portfolio.  As of July __,  2005,  the Fund had none of its assets
invested in bonds.


                               PORTFOLIO CONTENTS

At any  given  time,  the  Fund  has  some or all of the  types  of  investments
described below. Under normal market conditions, the Fund invests primarily in a
portfolio of common  stocks and income  producing  securities  such as stocks of
REITs, RICs and utilities, bonds and preferred stocks.

COMMON  STOCKS.  The Fund may invest all or any  portion of its assets in common
stock.  Common  stock is defined as shares of a  corporation  that  entitle  the
holder to a pro rata share of the profits of the  corporation,  if any,  without
preference  over any  other  shareholder  or class  of  shareholders,  including
holders of the  corporation's  preferred  stock and other senior equity.  Common
stock  usually  carries  with it the right to vote and  frequently  an exclusive
right to do so. Upon liquidation, holders of common stock also have the right to
participate in the assets of the corporation after all other claims are paid.

In selecting  common stocks for investment,  the Fund expects to focus primarily
on U.S.-based  companies,  although the Fund is permitted to invest in companies
outside the U.S.  Generally,  target  companies have  consistent high returns on
equity,  while using modest  amounts of debt relative to their  industries.  The
Fund seeks  investments in businesses the Advisers  understand which have fairly
predictable and improving future earnings, and most importantly,  are reasonably
priced relative to the businesses'  earnings and anticipated growth in earnings.
The Fund does not focus its investments in "large-cap", "mid-cap" or "small-cap"
companies  since  the  Advisers  believe  it  would be  unwise  to  impose  such
investment limitations.

REAL ESTATE INVESTMENT  TRUSTS (REITs).  As a matter of investment  policy,  the
Fund is  concentrated  in  REITs,  which  means it  will,  under  normal  market
conditions,  invest more than 25% of its total  assets in REITs or  companies in
the real estate  industry.  The Fund must obtain  shareholder  approval prior to
changing this policy.  REITs are trusts that invest primarily in commercial real
estate or real  estate-related  loans. A REIT is not taxed on income distributed
to its shareholders or unit-holders if it complies with regulatory  requirements
relating  to  its  organization,  ownership,  assets  and  income,  and  with  a
regulatory requirement that it distribute to its shareholders or unit-holders at
least 90% of its taxable income for each taxable year.  Generally,  REITs can be
classified as equity REITs, mortgage REITs and hybrid REITs. Equity REITs invest
the majority of their assets  directly in real  property and derive their income
primarily  from rents and  capital  gains  from  appreciation  realized  through
property  sales.  Mortgage  REITs  invest the  majority of their  assets in real
estate  mortgages  and derive their income  primarily  from  interest  payments.
Hybrid REITs combine the  characteristics  of both equity and mortgage REITs. By
investing in REITs indirectly through the Fund,  shareholders will bear not only
the  proportionate  share of the  expenses  of the Fund,  but also,  indirectly,
similar  expenses of underlying  REITs.  The Fund invests in REITs primarily for
income.



The Fund may be subject to certain risks associated with the direct  investments
of the REITs.  REITs may be affected by changes in their  underlying  properties
and by defaults by borrowers or tenants.  Mortgage  REITs may be affected by the
quality of the credit extended.  Furthermore, REITs are dependent on specialized
management  skills.  Some  REITs  may have  limited  diversification  and may be
subject to risks  inherent in financing a limited  number of  properties.  REITs
depend generally on their ability to generate cash flow to make distributions to
shareholders or unit-holders, and may be subject to defaults by borrowers and to
self-liquidations. In addition, a REIT may be affected by its failure to qualify
for  tax-free  pass-through  of income under the Code or its failure to maintain
exemption from registration under the 1940 Act.

REGISTERED  INVESTMENT  COMPANIES (RICs).  The Fund is permitted to invest up to
10% of its assets in securities  issued by RICs.  The common stock of closed-end
RICs can trade at a substantial  discount to the  underlying  net asset value of
the RIC, and the Fund may, from time to time,  invest in common stocks issued by
RICs when they are trading at  discounts  or when the  Advisers  otherwise  deem
market conditions appropriate.  The Fund intends to normally invest in RICs that
pay  dividends.  RICs that pay regular  dividends  typically  own interest  rate
sensitive  securities,  which  tend to  increase  in value when  interest  rates
decline, and decrease in value when interest rates increase.  To the extent that
the Fund  invests in RICs,  the Fund's  shareholders  will incur  expenses  with
respect to both the Fund and that portion of the Fund's assets invested in other
RICs.  However,  as common  stocks of closed-end  RICs can trade at  substantial
discounts  to their  underlying  net asset  values,  the  Advisers  may deem the
"double"  expense to have minimal  impact when compared to the discount at which
the Fund may buy their  shares.  The net asset value and market  value of common
stock issued by RICs will fluctuate with the value of the underlying assets. The
Fund may invest in the auction market  preferred stock of other closed-end funds
primarily as a means of investing  the Fund's cash for the  short-term in higher
yielding  alternatives to repurchase  agreements or US treasury securities.  The
Fund will consider  investing cash in these  instruments,  and other  short-term
money market type alternatives,  when the yield spread is adequately  attractive
over repurchase agreements and US treasuries.  The Fund generally will invest in
auction  market  preferred  stocks that are rated AAA  although it may invest in
lower rated securities from time to time.

PREFERRED  STOCKS.  The Fund  may  invest  in  preferred  securities.  Preferred
securities are equity  securities,  but they have many  characteristics of fixed
income  securities,  such as a fixed  dividend  payment  rate and/or a liquidity
preference over the issuer's common shares.  However,  because  preferred shares
are  equity  securities,  they may be more  susceptible  to risks  traditionally
associated with equity investments than fixed income  securities.  Unlike common
stock, preferred securities typically do not have voting rights.

Fixed rate preferred  stocks have fixed dividend  rates.  They can be perpetual,
with no mandatory  redemption date, or issued with a fixed mandatory  redemption
date.  Certain  issues of  preferred  stock are  convertible  into other  equity
securities.  Perpetual  preferred stocks provide a fixed dividend throughout the
life of the issue, with no mandatory retirement provisions, but may be callable.
Sinking fund  preferred  stocks  provide for the  redemption of a portion of the
issue on a regularly scheduled basis with, in most cases, the entire issue being
retired  at a future  date.  The value of fixed  rate  preferred  stocks  can be
expected to vary inversely with interest rates. Adjustable rate preferred stocks
have a  variable  dividend  rate  which is  determined  periodically,  typically
quarterly,  according to a formula  based on a specified  premium or discount to
the  yield  on  particular  U.S.  Treasury  securities,  typically  the  highest
base-rate yield of one of three U.S.  Treasury  securities:  the 90-day Treasury
bill; the 10-year Treasury note; and either the 20-year or 30-year Treasury bond
or other index.  The premium or discount to be added to or subtracted  from this
base-rate  yield is fixed at the time of issuance and cannot be changed  without
the  approval  of the  holders of the  adjustable  rate  preferred  stock.  Some
adjustable  rate preferred  stocks have a maximum and a minimum rate and in some
cases are convertible into common stock.

Auction  rate  preferred  stocks pay  dividends  that  adjust  based on periodic
auctions. Such preferred stocks are similar to short-term corporate money market
instruments in that an auction rate preferred stockholder has the opportunity to
sell the preferred stock at par in an auction, normally conducted at least every
49 days, through which buyers set the dividend rate in a bidding process for the
next period.  The dividend rate set in the auction depends on market  conditions
and the credit quality of the  particular  issuer.  Typically,  the auction rate
preferred stock's dividend rate is limited to a specified maximum  percentage of
an external commercial paper index as of the auction date. Further, the terms of
the auction rate preferred stocks generally  provide that they are redeemable by
the issuer at certain times or under certain conditions.

The Fund may, from time to time, invest in preferred  securities that are rated,
or whose issuer's senior debt is rated, investment grade by Moody's and Standard
& Poor's ("S&P") at the time of investment,  although the Fund is not limited to
investments in investment grade preferred securities.  In addition, the Fund may
acquire  unrated  issues that the Advisers  deem to be  comparable in quality to
rated issues in which the Fund is authorized to invest.

MONEY MARKET INSTRUMENTS.  Under normal conditions,  the Fund may hold up to 10%
of its assets in cash or money market instruments. The Fund intends to invest in
money market  instruments  pending  investments  in common  stocks,  to serve as
collateral in connection with certain  investment  techniques,  and to hold as a
reserve pending the payment of dividends to investors. When the Advisers believe
that economic  circumstances warrant a temporary defensive posture, the Fund may
invest without limitation in short-term money market instruments.



Money market  instruments  that the Fund may acquire  usually will be securities
rated  in the  highest  short-term  rating  category  by  Moody's  or S&P or the
equivalent from another major rating service, or securities of issuers that have
received  such  ratings  with  respect to other  short-term  debt or  comparable
unrated securities. Money market instruments in which the Fund typically expects
to invest include:  Government  Securities (as defined below);  bank obligations
(including  certificates of deposit,  time deposits and bankers'  acceptances of
U.S. or foreign banks); commercial paper rated P-l by Moody's or A-1 by S&P; and
repurchase agreements.

REPURCHASE AGREEMENTS.  The Fund may invest temporarily,  without limitation, in
repurchase  agreements,  which are agreements  pursuant to which  securities are
acquired by the Fund from a third party with the understanding that they will be
repurchased by the seller at a fixed price on an agreed date.  These  agreements
may be made with respect to any of the portfolio securities in which the Fund is
authorized  to  invest.  Repurchase  agreements  may be  characterized  as loans
secured  by the  underlying  securities.  The Fund  may  enter  into  repurchase
agreements  with (i) member  banks of the Federal  Reserve  System  having total
assets in excess of $500 million and (ii) securities dealers, provided that such
banks or dealers  meet certain  creditworthiness  standards  established  by the
Board.  The resale price reflects the purchase price plus an agreed-upon  market
rate of interest  which is  unrelated  to the coupon rate or date of maturity of
the  purchased  security.  The  collateral  is  marked  to  market  daily.  Such
agreements  permit  the  Fund to keep  all its  assets  earning  interest  while
retaining  "overnight"  flexibility  in pursuit of  investments of a longer term
nature.

GOVERNMENT SECURITIES. The Fund may invest in government securities that include
direct  obligations  of  the  United  States  and  obligations  issued  by  U.S.
government agencies and instrumentalities  ("Government  Securities").  Included
among direct obligations of the United States are treasury bills, treasury notes
and treasury bonds,  which differ  principally in terms of their  maturities and
are  supported by the full faith and credit of the U.S.  government.  Securities
issued  by  U.S.  government  agencies  and   instrumentalities   include  other
securities  that are supported by the full faith and credit of the United States
(such as Government National Mortgage Association certificates); securities that
are supported by the right of the issuer to borrow from the U.S.  Treasury (such
as securities of Federal Home Loan Banks);  and securities that are supported by
the credit of the instrumentality (such as Federal National Mortgage Association
and Federal Home Loan  Mortgage  Corporation  bonds).  No assurance can be given
that the U.S.  government will provide  financial  support in the future to U.S.
government agencies,  authorities or instrumentalities that are not supported by
the full faith and  credit of the United  States.  Securities  guaranteed  as to
principal  and interest by the U.S.  government,  its agencies,  authorities  or
instrumentalities  include (i) securities for which the payment of principal and
interest  is  backed  by an  irrevocable  letter  of  credit  issued by the U.S.
government or any of its agencies,  authorities or  instrumentalities;  and (ii)
participations in loans made to non-U.S.  governments or other entities that are
so  guaranteed.  The  secondary  market for certain of these  participations  is
limited and therefore may be regarded as illiquid.

ZERO  COUPON  SECURITIES.  The Fund may invest up to 10% of its total  assets in
zero  coupon  securities  issued  by  the  U.S.  government,   its  agencies  or
instrumentalities, as well as custodial receipts or certificates underwritten by
securities dealers or banks that evidence ownership of future interest payments,
principal  payments  or both  on  certain  government  securities.  Zero  coupon
securities  pay no cash income to their holders until they mature and are issued
at substantial  discounts  from their value at maturity.  When held to maturity,
their entire return comes from the  difference  between their purchase price and
their maturity value.  Because interest on zero coupon securities is not paid on
a current  basis,  the values of  securities of this type are subject to greater
fluctuations  than are the values of securities that distribute income regularly
and may be more  speculative than such  securities.  Accordingly,  the values of
these  securities  may be highly  volatile  as interest  rates rise or fall.  In
addition,  the Fund's  investments  in zero  coupon  securities  will  result in
special tax  consequences.  Although zero coupon securities do not make interest
payments,  for tax  purposes a portion of the  difference  between a zero coupon
security's  maturity  value and its purchase price is taxable income of the Fund
each year.

Custodial  receipts  evidencing  specific coupon or principal  payments have the
same  general  attributes  as  zero  coupon  Government  Securities  but are not
considered to be Government Securities.  Although typically under the terms of a
custodial  receipt the Fund is authorized to assert its rights directly  against
the issuer of the  underlying  obligation,  the Fund may be  required  to assert
through  the  custodian  bank such rights as may exist  against  the  underlying
issuer.  Thus, in the event the underlying  issuer fails to pay principal and/or
interest  when due,  the Fund may be subject to delays,  expenses and risks that
are greater than those that would have been involved if the Fund had purchased a
direct  obligation  of the issuer.  In addition,  in the event that the trust or
custodial  account  in which  the  underlying  security  has been  deposited  is
determined  to  be  an  association  taxable  as  a  corporation,  instead  of a
non-taxable  entity,  the yield on the  underlying  security would be reduced in
respect of any taxes paid.

LENDING OF  SECURITIES.  The Fund is authorized  to lend  securities it holds to
brokers, dealers and other financial  organizations,  although it has no current
intention of doing so. Loans of the Fund's securities, if and when made, may not
exceed 33-1/3% of the Fund's total assets.  The Fund's loans of securities  will
be collateralized by cash, letters of credit or Government  Securities that will
be maintained at all times in a segregated  account with the Fund's custodian in
an amount at least equal to the current  market value of the loaned  securities.
From  time to  time,  the Fund may pay a part of the  interest  earned  from the
investment of collateral received for securities loaned to the borrower and/or a
third party that is unaffiliated with the Fund and that is acting as a "finder."

By  lending  its  portfolio  securities,  the Fund can  increase  its  income by
continuing to receive interest on the loaned  securities,  by investing the cash
collateral  in  short-term  instruments  or by  obtaining  yield  in the form of
interest paid by the borrower when Government Securities are used as collateral.
The risk in lending  portfolio  securities,  as with other extensions of credit,
consists of the  possible  delay in recovery of the  securities  or the possible
loss of rights in the collateral should the borrower fail financially.  The Fund
will adhere to the following  conditions  whenever it lends its securities:  (i)
the Fund must receive at least 100% cash  collateral  or  equivalent  securities
from the borrower, which will be maintained by daily marking-to-market; (ii) the
borrower  must  increase  the  collateral  whenever  the  market  value  of  the
securities  loaned rises above the level of the collateral;  (iii) the Fund must
be able to terminate the loan at any time; (iv) the Fund must receive reasonable
interest on the loan, as well as any dividends,  interest or other distributions
on the loaned  securities and any increase in market value; (v) the Fund may pay
only  reasonable  custodian  fees in connection  with the loan;  and (vi) voting
rights on the loaned  securities  may pass to the  borrower,  except that,  if a
material  event  adversely  affecting the  investment  in the loaned  securities
occurs,  the Board must  terminate  the loan and regain the Fund's right to vote
the securities.



PORTFOLIO  TURNOVER.  Although the Advisers are not  restricted  with respect to
portfolio  turnover,  it is not the Fund's policy to engage in transactions with
the objective of seeking  profits from short-term  trading.  It is expected that
the annual  portfolio  turnover rate of the Fund will be less than 50% excluding
securities  having a maturity of one year or less.  Because it is  difficult  to
accurately  predict portfolio  turnover rates,  actual turnover may be higher or
lower.  Higher portfolio turnover results in increased Fund expenses,  including
brokerage  commissions,  dealer mark-ups and other transaction costs on the sale
of securities and on the reinvestment in other securities.  For the fiscal years
ended  November 30, 2003 and November 30, 2004,  the Fund's  portfolio  turnover
rates were 40% and 33%, respectively.


                                  RISK FACTORS

Risk is inherent in all investing.  Investing in any investment company security
involves  risk,  including the risk that you may receive  little or no return on
your investment or that you may lose part or all of your investment.  Therefore,
before  investing you should  consider  carefully  the following  risks that you
assume when you invest in Preferred Shares.

LEVERAGE  RISK.  The Fund expects to use financial  leverage on an ongoing basis
for investment purposes.  Taking into account the Preferred Shares being offered
in this prospectus, and the retirement of the Bank Debt with the proceeds of the
Preferred Shares, the amount of leverage would, as of July ___, 2005,  represent
approximately  ____% of the Fund's total assets.  The Fund's  leveraged  capital
structure  creates special risks not associated with unleveraged  funds having a
similar  investment  objectives and policies.  These include the  possibility of
higher  volatility  of both the net  asset  value  of the Fund and the  value of
assets serving as asset coverage for the Preferred Shares.

Because  the fee paid to the  Advisers  will be  calculated  on the basis of the
Fund's  managed assets (which equals the aggregate net asset value of the common
shares plus the liquidation preference of the Preferred Shares), the fee will be
higher when  leverage is  utilized,  giving the Advisers an incentive to utilize
leverage.

INTEREST RATE RISK.  The Preferred  Shares pay dividends  based on  shorter-term
interest rates. The Fund presently has invested the proceeds of the Bank Debt in
REITs and other dividend paying and income producing  securities  (defined above
as "Income Producing  Securities") and anticipates  continuing to do so in order
to generate  sufficient income to pay interest on the Preferred Shares when due.
The dividends and rates paid on the Income Producing  Securities can be expected
to fluctuate. If short-term interest rates rise, dividend rates on the Preferred
Shares  will also rise since the  auction  setting the  dividends  on  Preferred
Shares  will  compete  for  investors  with  other  short-term  instruments.   A
significant  increased dividend rate on the Fund's Preferred Shares could result
in the Fund under-earning its Preferred Shares dividend, which would lead to the
Preferred Shares shareholders receiving a return of capital,  assuming there are
no capital gains to be paid out.  Similarly,  if the rating  agencies  lower the
rating  assigned to the  Preferred  Shares,  the dividend  rate on the Preferred
Shares will likely  increase.  The Fund must pay all its expenses  before it can
pay any dividends, including any Preferred Shares dividends.

AUCTION RISK. The dividend rate for the Preferred Shares normally is set through
an auction process. In the auction, holders of Preferred Shares may indicate the
dividend  rate at which they  would be  willing to hold or sell their  Preferred
Shares or  purchase  additional  Preferred  Shares.  The auction  also  provides
liquidity for the sale of Preferred  Shares.  An auction fails if there are more
Preferred Shares offered for sale than there are buyers.  You may not be able to
sell your  Preferred  Shares at an auction if the auction fails. A holder of the
Preferred  Shares  therefore  can be  given  no  assurance  that  there  will be
sufficient  clearing bids in any auction or that the holder will be able to sell
its Preferred  Shares in an auction.  Also,  if you place bid orders  (orders to
retain  Preferred  Shares) at an auction only at a specified  dividend rate, and
that  rate  exceeds  the rate set at the  auction,  you  will  not  retain  your
Preferred Shares.  Additionally,  if you buy Preferred Shares or elect to retain
Preferred  Shares  without  specifying a dividend rate below which you would not
wish to buy or  continue to hold those  Preferred  Shares,  you could  receive a
lower rate of return on your Preferred Shares than the market rate. Finally, the
dividend periods for the Preferred Shares may be changed by the Fund, subject to
certain  conditions with notice to the holders of Preferred Shares,  which could
also affect the liquidation of your  investment.  See  "Description of Preferred
Shares" and "The Auction - Auction Procedures."

As noted above, if there are more auction rate securities  offered for sale than
there are buyers for those auction rate  securities in any auction,  the auction
will  fail  and you may not be  able to sell  some or all of your  auction  rate
securities  at that time.  The  relative  buying and selling  interest of market
participants  in your auction rate securities and in the auction rate securities
market as a whole will vary over time,  and such  variations may be affected by,
among  other  things,  news  relating  to  the  issuer,  the  attractiveness  of
alternative  investments,  the  perceived  risk of owning the security  (whether
related to credit,  liquidity or any other risk), the tax treatment accorded the
instruments,   the  accounting   treatment  accorded  auction  rate  securities,
including recent clarifications of U.S. generally accepted accounting principles
relating to the  treatment of auction rate  securities,  reactions to regulatory
actions or press  reports,  financial  reporting  cycles  and  market  sentiment
generally.  Shifts of demand in response to any one or  simultaneous  particular
events cannot be predicted and may be short-lived or exist for longer periods.



SECONDARY MARKET RISK. If you try to sell your Preferred Shares between auctions
you may not be able to sell any or all of your  Preferred  Shares or you may not
be able to sell them for $25,000 per share or $25,000 per share plus accumulated
but unpaid  dividends.  If the Fund has designated a special  dividend period (a
rate period of more than  twenty-eight  days),  changes in interest  rates could
affect  the price you would  receive  if you sold your  Preferred  Shares in the
secondary market.  You may transfer Preferred Shares outside of auctions only to
or through a Broker-Dealer that has entered into a Broker-Dealer  Agreement,  or
other  persons  as the Fund  permits.  The Fund  does  not  anticipate  imposing
significant restrictions on transfers to other persons. However, unless any such
other  person has entered  into a  relationship  with a  Broker-Dealer  that has
entered into a Broker-Dealer  Agreement with the Auction Agent, that person will
not be able to submit bids at auctions  with  respect to the  Preferred  Shares.
Broker-Dealers that maintain a secondary trading market for Preferred Shares are
not  required to maintain  this  market,  and the Fund is not required to redeem
Preferred  Shares  either if an auction or an  attempted  secondary  market sale
fails because of a lack of buyers.  The Preferred Shares will not be listed on a
stock exchange or the Nasdaq National Market.  If you sell your Preferred Shares
to a  Broker-Dealer  between  auctions,  you may receive less than the price you
paid for them,  especially  if market  interest  rates have risen since the last
auction. In addition, a Broker-Dealer may, in its own discretion, decide to sell
the Preferred Shares in the secondary market to investors at any time and at any
price,  including at prices  equivalent  to, below or above the par value of the
Preferred Shares.

SECURITIES AND EXCHANGE COMMISSION INQUIRIES.  The Underwriters have advised the
Fund that certain of the Underwriters and various other broker-dealers and other
firms that  participate in the auction rate securities  market received  letters
from the staff of the Securities and Exchange  Commission in the spring of 2004.
The  letters  requested  that  each  of  these  firms  voluntarily   conduct  an
investigation  regarding its respective practices and procedures in that market.
Pursuant  to  these  requests,  each of  those  Underwriters  conducted  its own
voluntary  review and  reported  its  findings to the  Securities  and  Exchange
Commission  staff. At the staff's  request,  those  Underwriters are engaging in
discussions  with the staff concerning its inquiry.  Neither those  Underwriters
nor the Fund can predict the ultimate outcome of the inquiry or how that outcome
will affect the market for the Preferred Shares or the auctions.

RATINGS AND ASSET COVERAGE RISK. While it is expected that Moody's will assign a
rating of Aaa to the  Preferred  Shares and Fitch will assign a rating of AAA to
the Preferred Shares, such ratings do not eliminate or necessarily  mitigate the
risks of investing in Preferred  Shares.  Moody's or Fitch could  downgrade  its
rating of the Preferred Shares or withdraw its rating of the Preferred Shares at
any time,  which may make  your  shares  less  liquid  at an  auction  or in the
secondary  market  and may  materially  and  adversely  affect  the value of the
Preferred Shares if sold outside an auction.  Moody's and Fitch are not required
to provide prior notice of a decision to downgrade  the  Preferred  Shares or to
withdraw their rating. If Moody's or Fitch downgrades the Preferred Shares,  the
Fund may alter its portfolio or redeem  Preferred Shares in an effort to improve
the rating,  although there is no assurance that it will be able to do so to the
extent  necessary to restore the prior rating.  If the Fund fails to satisfy the
asset coverage ratios discussed under  "Description of Preferred Shares - Rating
Agency Guidelines and Asset Coverage," the Fund will be required to redeem, at a
time that is not favorable to the Fund or its shareholders,  a sufficient number
of Preferred  Shares in order to return to  compliance  with the asset  coverage
ratios. The Fund may be required to redeem Preferred Shares at a time when it is
not advantageous for the Fund to make such redemption or to liquidate  portfolio
securities in order to have  available  cash for such  redemption.  The Fund may
voluntarily redeem Preferred Shares under certain circumstances in order to meet
asset  maintenance  tests.  While a sale of substantially  all the assets of the
Fund or the merger of the Fund into another entity would require the approval of
the holders of Preferred  Shares voting as a separate  class as discussed  under
"Description of Preferred Shares - Voting Rights," a sale of  substantially  all
the  assets of the Fund or the  merger of the Fund with or into  another  entity
would not be  treated as a  liquidation  of the Fund nor  require  that the Fund
redeem Preferred Shares,  in whole or in part,  provided that the Fund continued
to  comply  with the asset  coverage  ratios  discussed  under  "Description  of
Preferred   Shares  -  Rating  Agency   Guidelines  and  Asset   Coverage."  See
"Description of Preferred Shares - Rating Agency  Guidelines and Asset Coverage"
for a description of the asset maintenance tests the Fund must meet.

RESTRICTIONS ON DIVIDENDS AND OTHER  DISTRIBUTIONS.  Restrictions imposed on the
declaration  and payment of dividends or other  distributions  to the holders of
the Fund's  common  shares  and  Preferred  Shares,  both by the 1940 Act and by
requirements  imposed by rating  agencies,  might  impair the Fund's  ability to
maintain its  qualification as a RIC for federal income tax purposes.  While the
Fund may redeem  Preferred Shares to enable the Fund to distribute its income as
required to maintain its  qualification as a RIC under the Code, there can be no
assurance that such redemptions can be effected in time to meet the requirements
of the Code. See "Federal Income Tax Matters."

GENERAL  RISKS OF INVESTING IN THE FUND.  The Fund is not a complete  investment
program and should only be considered  as an addition to an investor's  existing
diversified  portfolio  of  investments.  Due  to  uncertainty  inherent  in all
investments, there can be no assurance that the Fund will achieve its investment
objective.

     NON-DIVERSIFIED  STATUS RISK.  The Fund is classified as  "non-diversified"
     under the 1940 Act.  As a result,  it can  invest a greater  portion of its
     assets in  obligations  of a single issuer than a  "diversified"  fund. The
     Fund will therefore be more  susceptible  than a diversified  fund to being
     adversely  affected  by  any  single  corporate,   economic,  political  or
     regulatory occurrence. The Fund intends to diversify its investments to the
     extent  necessary  to qualify,  and  maintain  its  status,  as a regulated
     investment  company under U.S. federal income tax laws. See "Federal Income
     Tax Matters."



     INVESTMENTS  IN COMMON  STOCKS.  The Fund  expects to invest,  under normal
     market conditions, in excess of 80% of its assets in publicly traded common
     stocks.  Common  stocks  generally  have greater  risk  exposure and reward
     potential  over time than bonds.  The volatility of common stock prices has
     historically  been greater than bonds, and as the Fund invests primarily in
     common  stocks,  the Fund's net asset value may also be volatile.  Further,
     because the time  horizon  for the Fund's  investments  in common  stock is
     longer,  the time  necessary for the Fund to achieve its objective of total
     return  will  likely be  longer  than for a fund that  invests  solely  for
     income.

     REINVESTMENT  RISK.  Income from the Fund's  portfolio  will decline if the
     Fund  invests  the  income  from or  proceeds  from the sale of its  Income
     Producing  Securities into lower yielding  instruments or Income  Producing
     Securities  with a lower  spread over the base  lending  rate. A decline in
     income could affect the Fund's  ability to pay  dividends on the  Preferred
     Shares.

     CONCENTRATION RISK. The Fund is classified as  "non-diversified"  under the
     1940 Act,  which  means it can  invest a greater  portion  of its assets in
     obligations  of a single issuer than a  "diversified"  fund.  The Fund will
     therefore be more  susceptible  than a diversified  fund to being adversely
     affected  by  any  single  corporate,  economic,  political  or  regulatory
     occurrence.  Taking  larger  positions  is  also  likely  to  increase  the
     volatility  of the Fund's net asset value,  reflecting  fluctuation  in the
     value of large Fund holdings.

     INVESTMENTS  IN  REITs.  As a  matter  of  investment  policy,  the Fund is
     concentrated  in  REITs,  which  means  it must  maintain  over  25% of its
     investments in REITs and other companies in the real estate  industry.  The
     Fund must obtain shareholder  approval prior to changing this policy,  thus
     limiting its  flexibility  to liquidate  REITs in the future  should market
     conditions  warrant.  Since the Fund  concentrates  its  assets in the real
     estate  industry,  the  Fund's  performance  will be  generally  linked  to
     performance  of the real estate  markets.  Property  values may fall due to
     increasing  vacancies or declining  rents  resulting from economic,  legal,
     cultural or technological  developments.  REIT prices also may drop because
     of poor  management  or the failure of borrowers  to pay their loans.  Many
     REITs utilize leverage which increases  investment risk and could adversely
     affect a REIT's  operations and market value in periods of rising  interest
     rates  as well as  risks  normally  associated  with  debt  financing.  The
     dividend  income  paid  out  by the  REIT  may be  reduced  or  eliminated,
     depending on the income produced by the underlying  properties owned by the
     REITs.  In the normal course of business,  REITs face risks that are either
     non-financial or  non-quantifiable.  These risks principally include credit
     risk as well as legal risk.  Because most REITs are typically financed with
     debt instruments, they are also interest rate sensitive. In addition, there
     are risks  associated  with particular  sectors of real estate  investments
     (e.g.,  retail,  office,  hotel,  healthcare and  multifamily  properties),
     although the Fund does not intend to focus on any particular sector of real
     estate investments.

     INVESTMENTS  IN  BERKSHIRE  HATHAWAY.  The Fund  presently  has  invested a
     significant  percentage of its portfolio in  low-dividend  or  non-dividend
     paying  common  stocks  such  as  Berkshire  Hathaway,   Inc.  (NYSE:  BRK)
     ("Berkshire").  As of July ___, 2005,  the Fund held 310 Berkshire  Class A
     shares,  representing  ____% of the  Fund's  assets.  The  Advisers  do not
     currently  intend to  liquidate  any  portion  of the  Fund's  position  in
     Berkshire.  Although not an insurance company itself,  Berkshire owns Geico
     Insurance  and General Re Insurance,  and  therefore  derives a significant
     portion of its income,  and its value, from these two insurance  companies.
     The insurance  business can be significantly  affected by interest rates as
     well as price competition  within the industry.  In addition,  an insurance
     company may  experience  significant  changes in its year to year operating
     performance  based  both on  claims  paid and on  performance  of  invested
     assets.  Insurance companies can also be affected by government regulations
     and tax laws, which may change from time to time. A significant  decline in
     the market price of  Berkshire  or any other  company in which the Fund has
     made  a  significant   common  stock  investment  (i)  would  result  in  a
     significant  decline in the Fund's  net asset  value,  (ii) may result in a
     proportionate  decline in the market price of the Fund's common shares, and
     (iii) may result in greater  risk and market  fluctuation  than a fund that
     has a more diversified portfolio.

     LEVERAGING.  The Fund is currently  leveraged with the Bank Debt which will
     be replaced with leverage  from the Preferred  Shares.  Use of leverage may
     have  a  number  of  adverse  effects  on the  Fund  and  its  shareholders
     including:  (i)  leverage  may magnify  market  fluctuations  in the Fund's
     underlying  holdings thus causing a  disproportionate  change in the Fund's
     net asset value;  (ii) the Fund's cost of leverage may exceed the return on
     the  underlying  securities  acquired  with the  proceeds of the  leverage,
     thereby  diminishing  rather than enhancing the return to shareholders  and
     generally  making  the  Fund's  total  return  to  such  shareholders  more
     volatile;  (iii) the Fund may be required to sell  investments  in order to
     meet  dividend or interest  payments on the debt or preferred  stock it has
     issued when it may be disadvantageous to do so; (iv) leveraging through the
     issuance of  preferred  stock  requires  that the holders of the  preferred
     stock have class voting  rights on various  matters that could make it more
     difficult  for the  holders  of the  Fund's  common  stock  to  change  the
     investment  objective or fundamental policies of the Fund, to convert it to
     an open-end  fund or make certain  other  changes;  and (v) the Fund may be
     forced to redeem some or all of the Preferred  Shares at inopportune  times
     due to a decline in market value of Fund investments.



     DISCOUNT FROM NET ASSET VALUE.  Common stock of closed-end funds frequently
     trade at a market  price  that is less  than  the  value of the net  assets
     attributable  to those  shares (a  "discount").  The  possibility  that the
     Fund's  shares  will  trade at a  discount  from net asset  value is a risk
     separate  and  distinct  from the risk that the Fund's net asset value will
     decrease.  The risk of  purchasing  shares of a closed-end  fund that might
     trade  at a  discount  or  unsustainable  premium  is more  pronounced  for
     investors  who wish to sell their  shares in a  relatively  short period of
     time because,  for those investors,  realization of a gain or loss on their
     investments  is likely to be more dependent upon the existence of a premium
     or discount than upon portfolio performance.

     SIZE  OF  FUND.  As  of  July  ___,  2005,  the  Fund  had  net  assets  of
     approximately  $____ million. As a fund with a relatively small asset base,
     the Fund may be subject to certain  operational  inefficiencies  including:
     higher  expense  ratio,  less coverage by analysts and the  marketplace  in
     general which can contribute to a less active trading market for the Fund's
     shares and  consequently a wider discount,  more limited ability to attract
     new investors  and/or take advantage of investment  opportunities  and less
     ability to take advantage of lower  transaction  costs  available to larger
     investors.

     REPURCHASE OF THE FUND'S COMMON STOCK. The Fund is authorized to repurchase
     its common  shares on the open  market  when the  shares  are  trading at a
     discount from net asset value as determined by the Board from time to time.
     The acquisition of common shares by the Fund will decrease the total assets
     of the Fund and,  therefore,  have the  effect  of  increasing  the  Fund's
     expense ratio and may  adversely  affect the ability of the Fund to achieve
     its investment objectives. Furthermore, the acquisition of common shares by
     the Fund may  require the Fund to redeem the  Preferred  Shares in order to
     maintain  certain asset coverage  requirements.  To the extent the Fund may
     need to liquidate investments to fund repurchase of common shares, this may
     result in portfolio turnover which will result in additional expenses being
     borne by the Fund.

     DEPENDENCE ON KEY PERSONNEL.  The Advisers are dependent upon the expertise
     of Stewart  Horejsi in  providing  advisory  services  with  respect to the
     Fund's  investments.  If the  Advisers  were to lose  the  services  of Mr.
     Horejsi,  their  ability to service the Fund could be  adversely  affected.
     There can be no assurance  that a suitable  replacement  could be found for
     Mr. Horejsi in the event of his death, resignation, retirement or inability
     to act on behalf of the Advisers.

     ISSUER RISK. The value of the Fund's  portfolio may decline for a number of
     reasons  which  directly  relate to the  issuers of the  securities  in the
     portfolio,  such as management performance,  financial leverage and reduced
     demand for the issuer's goods and services.

     INFLATION  RISK.  Inflation  risk is the risk  that the  value of assets or
     income  from  investment  will be worth  less in the  future  as  inflation
     decreases the value of money. As inflation increases, the real value of the
     common shares and distributions thereon can decline.

     REPURCHASE  AGREEMENTS.  The use of repurchase  agreements involves certain
     risks.  For  example,  if the  seller  of  securities  under  a  repurchase
     agreement   defaults  on  its   obligation  to  repurchase  the  underlying
     securities,  as a result of bankruptcy or otherwise,  the Fund will seek to
     dispose of such securities,  which action could involve costs or delays. If
     the seller becomes  insolvent and subject to liquidation or  reorganization
     under applicable bankruptcy or other laws, the Fund's ability to dispose of
     the underlying  securities may be restricted.  Finally, it is possible that
     the Fund may not be able to  substantiate  its  interest in the  underlying
     securities. To minimize this risk, the securities underlying the repurchase
     agreement  will be held by the custodian at all times in an amount at least
     equal to the repurchase price,  including  accrued interest.  If the seller
     fails to  repurchase  the  securities,  the  Fund may  suffer a loss to the
     extent  proceeds from the sale of the  underlying  securities are less than
     the repurchase price.

     FOREIGN  SECURITIES  RISK.  The Fund may  invest  without  limit in foreign
     securities.  Investment  in  non-U.S.  issuers  may  involve  unique  risks
     compared to investing in securities of U.S.  issuers.  These risks are more
     pronounced to the extent that the Fund invests a significant portion of its
     non-U.S.  investment in one region or in the securities of emerging  market
     issuers. These risks may include:

     o Less information  about non-U.S.  issuers or markets may be available due
     to less rigorous disclosure, accounting standards or regulatory practices.

     o Many non-U.S.  markets are smaller,  less liquid and more volatile.  In a
     changing market,  the Advisers may not be able to sell the Fund's portfolio
     securities at times, in amounts and at prices they consider reasonable.

     o Currency exchange rates or controls may adversely affect the value of the
     Fund's investments.

     o The  economies  of  non-U.S.  countries  may grow at  slower  rates  than
     expected or may experience a downturn or recession.

     o Withholdings and other non-U.S. taxes may decrease the Fund's return.

     CURRENCY  RISK. A portion of the Fund's assets may be quoted or denominated
     in non-U.S.  currencies.  These  securities  may be  adversely  affected by
     fluctuations in relative  currency  exchange rates and by exchange  control
     regulations.  The Fund's investment  performance may be negatively affected
     by a devaluation of a currency in which the Fund's  investments  are quoted
     or  denominated.   Further,  the  Fund's  investment   performance  may  be
     significantly  affected,  either  positively  or  negatively,  by  currency
     exchange  rates  because  the U.S.  dollar  value of  securities  quoted or
     denominated  in another  currency  will increase or decrease in response to
     changes in the value of such currency in relation to the U.S. dollar.



     SOVEREIGN  DEBT  RISK.  An  investment  in  debt  obligations  of  non-U.S.
     governments and their political  subdivisions  ("sovereign  debt") involves
     special  risks that are not  present in  corporate  debt  obligations.  The
     non-U.S.  issuer  of  the  sovereign  debt  or  the  non-U.S.  governmental
     authorities  that  control  the  repayment  of the  debt may be  unable  or
     unwilling to repay  principal  or interest  when due, and the Fund may have
     limited  recourse  in the event of a default.  During  periods of  economic
     uncertainty,  the market prices of sovereign debt may be more volatile than
     prices of debt obligations of U.S. issuers.  In the past,  certain non-U.S.
     countries   have   encountered   difficulties   in  servicing   their  debt
     obligations,  withheld  payments of  principal  and  interest  and declared
     moratoria on the payment of principal and interest on their sovereign debt.

     A sovereign  debtor's  willingness  or ability to repay  principal  and pay
     interest in a timely  manner may be affected by, among other  factors,  its
     cash flow  situation,  the extent of its  foreign  currency  reserves,  the
     availability of sufficient non-U.S. exchange, the relative size of the debt
     service  burden,   the  sovereign  debtor's  policy  toward  its  principal
     international  lenders and local political  constraints.  Sovereign debtors
     may also be dependent on expected disbursements from non-U.S.  governments,
     multilateral  agencies and other entities to reduce  principal and interest
     arrearages  on their debt.  The failure of a sovereign  debtor to implement
     economic reforms, achieve specified levels of economic performance or repay
     principal  or  interest  when  due  may  result  in  the   cancellation  of
     third-party  commitments to lend funds to the sovereign  debtor,  which may
     further impair such debtor's ability or willingness to service its debts.

     LIQUIDITY RISK. Although the Fund invests primarily in securities traded on
     national  exchanges,  it may invest in less liquid assets from time to time
     that are not  readily  marketable  and may be  subject to  restrictions  on
     resale.  Illiquid  securities  may be more difficult to value or may impair
     the Fund's  ability to realize the full value of its assets in the event of
     a voluntary or involuntary  liquidation of such assets and thus may cause a
     decline in the Fund's net asset value.  . The Fund has no limitation on the
     amount of its  assets  that may be  invested  in  securities  which are not
     readily  marketable or are subject to restrictions  on resale,  although it
     may not invest more than 30% of the value of its total assets in securities
     which have been acquired through private placement.  In certain situations,
     the Fund could find it more difficult to sell such  securities at desirable
     times and/or prices.

     MARKET  DISRUPTION  RISK.  The  terrorist  attacks in the United  States on
     September 11, 2001 had a disruptive effect on the securities  markets.  The
     Fund cannot predict the effects of similar events in the future on the U.S.
     economy.  These terrorist attacks and related events,  including the war in
     Iraq, its aftermath, and continuing occupation of Iraq by coalition forces,
     have led to increased  short-term  market volatility and may have long-term
     effects on U.S. and world  economies and markets.  A similar  disruption of
     the financial  markets could impact  interest  rates,  auctions,  secondary
     trading,  ratings, credit risk, inflation and other factors relating to the
     Preferred Shares.

     ANTI-TAKEOVER  PROVISIONS  RISK.  The Fund's  Charter  and  Bylaws  include
     provisions  that could  limit the  ability of other  entities or persons to
     acquire control of the Fund or to change the composition of its Board. Such
     provisions  could limit the ability of shareholders to sell their shares at
     a premium over prevailing  market prices by discouraging a third party from
     seeking to obtain control of the Fund.  These  provisions  include  advance
     notice  requirements  for  shareholder  proposals,   super-majority  voting
     requirements for certain transactions with affiliates, open-ending the Fund
     and a merger, liquidation, asset sale or similar transaction.


                             MANAGEMENT OF THE FUND

The Board is  responsible  for the  overall  management  of the Fund,  including
supervision  of the duties  performed by the Advisers.  There are currently five
directors  of the Fund,  one of whom is an  "interested  person" of the Fund (as
defined in the 1940 Act).

INFORMATION  ABOUT  DIRECTORS AND OFFICERS.  Set forth in the following table is
certain information about each Director of the Fund, including his address, age,
position  with the Fund,  term of office,  length of time  served and  principal
occupation during the last five years:



                                                                                               
Name, Address*, Age        Position, Length of       Principal Occupation(s) and Other                  Number of Funds
                           Term Served, and Term     Directorships Held During the Past Five            in Fund Complex
                           of Office**               Years                                              Overseen by
                                                                                                        Director+
------------------------------------------------------------------------------------------------------------------------------------
Independent Directors

Joel W. Looney,            Director of the Fund      Partner, Financial Management Group, LLC           2
Chairman                   since January, 2002.      (investment adviser), since July 1999; CFO,
Age:  43                   Chairman of the Board     Bethany College, 1995-1999; Director,
                           of the Fund since         Boulder Total Return Fund, Inc., since
                           October 2004.             January 2001; Director and Chairman of the
                                                     Board, First Financial Fund, Inc., since
                                                     August 2003.


Alfred G. Aldridge, Jr.    Director of the Fund      Executive Vice President, Business                 2
Brig. Gen. (Retired)       since January 2002.       Development Specialists (sales and
Cal. Air National Guard                              marketing consulting) since 2004; Sales
Age: 67                                              Manager, Shamrock Foods Company,1982-2002;
                                                     Director, Arizona Sports Foundation, since
                                                     1997;  Director, Boulder Total Return Fund,
                                                     Inc., since 1999; Director, Maricopa Youth
                                                     Assistance Foundation, since 2004.

Richard I. Barr            Director of the Fund      Retired; Manager, Advantage Sales and              2
Age:  67                   since January 2002.       Marketing, Inc. (food brokerage),
                                                     1963-2001; Director, Boulder Total Return
                                                     Fund, Inc., since 1999 and Chairman of the
                                                     Board since 2003; Director, First Financial
                                                     Fund, Inc., since 2001.

Dennis R. Causier***       Director of the Fund      Retired; Managing Director and Chairman,           1
Age:  57                   since October 2004.       P.S. Group PLC (engineering and
                                                     construction), 1966-2001; Owner,
                                                     Professional Yacht Management Services
                                                     (yacht management) 2002-present; Director,
                                                     First Financial Fund, Inc., since October,
                                                     2004.
------------------------------------------------------------------------------------------------------------------------------------
Interested Director

John S. Horejsi++          Director of the Fund      Director of Horejsi Charitable Foundation          1
Age: 37                    since May 2004.           (a private charitable foundation), since
                                                     1997.


* Unless  otherwise  specified,  the  Directors'  respective  addresses  are c/o
Boulder  Growth & Income  Fund,  Inc.,  1680 38th  Street,  Suite 800,  Boulder,
Colorado 80301.

** Each Director's current term expires at the annual meeting of shareholders in
2006.

*** Mr.  Causier  is a  British  citizen  and a  resident  of  ____________  and
substantially  all of his assets are  located  outside the United  States.  As a
result,  it may be difficult to realize judgments of courts of the United States
predicated upon civil  liabilities  under federal  securities laws of the United
States.  The Fund has been advised that there is substantial doubt as to (i) the
enforceability in  ______________ of such civil remedies and criminal  penalties
as are  afforded  by the  federal  securities  laws of the United  States,  (ii)
whether the ____________  courts would enforce judgments of United States courts
obtained in actions  against Mr.  Causier  predicated  upon the civil  liability
provisions of the federal  securities  laws, or (iii) whether  _________  courts
would enforce, in an original action, liabilities against Mr. Causier predicated
solely on federal  securities  laws.  Mr. Causier has appointed the Secretary of
the Fund  (presently  Stephanie  Kelley in Boulder,  Colorado)  as his agent for
service of process in any legal action in the United States, thus subjecting him
to the jurisdiction of the United States courts.

+ The "fund  complex"  consists of the Fund and Boulder Total Return Fund,  Inc.
which is also managed by the Advisers.

++  Mr.  Horejsi  is an  "interested  person"  of  the  Fund  by  virtue  of his
relationship  with Stewart Horejsi,  the Fund's primary portfolio manager and an
employee of BIA and SIA.

Messrs.  Looney,  Barr and Causier also serve as  directors  of First  Financial
Fund, Inc., an investment  company  acknowledged to be under common control with
the Advisers.  From the late 1980's until  January,  2001,  Mr.  Looney  served,
without compensation,  as one of three trustees of the Mildred Horejsi Trust, an
affiliate of the Fund's  largest  shareholder,  the Ernest  Horejsi Trust No. 1B
(the "EH  Trust").  The  address  for the EH Trust is 3601 C Street,  Suite 600,
Anchorage, Alaska 99503.

The EH Trust  holds  [21%] of the  Fund's  outstanding  shares and is the Fund's
largest shareholder.  The EH Trust has asserted,  and the Fund has acknowledged,
that the EH Trust is a "control  person" as  contemplated  by the 1940 Act.  The
sole  trustees of the EH Trust are Badlands  Trust  Company,  LLC  ("Badlands"),
Larry Dunlap and Susan Ciciora,  Stewart Horejsi's daughter  (collectively,  the
"EH  Trustees").  The EH  Trustees  may also be deemed to be control  persons by
virtue of their trusteeship with the EH Trust. The EH Trustees disclaim any such
control relationship.  The Stewart R. Horejsi Trust No. 2A (the "SRH Trust"), an
irrevocable  grantor trust established by Stewart Horejsi for the benefit of his
issue, is the sole equity owner of Badlands and may be deemed indirectly to be a
control person by virtue of its ownership of Badlands.  The SRH Trust  disclaims
any such control relationship.



As discussed  above,  the EH Trust owns [21%] of the Fund's common  stock,  is a
"control  person"  as  contemplated  under the 1940 Act and is  affiliated  with
entities who own the Advisers and FAS (i.e., the Horejsi Affiliates). As a large
shareholder,  EH Trust is able to significantly influence any matters upon which
the  holders of common  stock may vote,  including  the  election  of the Fund's
directors and any change in the Fund's investment adviser.  Since all members of
the Board are elected  annually,  the EH Trust may be able to effect a change of
control  with  respect  to the  entire  Board in a single  election.  Similarly,
several of the Fund's corporate  governance  policies grant shareholders  voting
power or decrease the voting requirement necessary to take certain actions. As a
large shareholder, the EH Trust will have greater influence over the adoption or
failure  of  certain   corporate   actions   requiring  a  vote  of  the  Fund's
shareholders.  In  particular,  the EH Trust would have a greater  influence  in
compelling  a special  meeting  with the support of only a small  percentage  of
other  non-Horejsi  shareholders.  Nonetheless,  since most of the other actions
under the Fund's corporate  governance  policies require the support of either a
majority or two-thirds of outstanding  shares for a future change,  the EH Trust
cannot  effect any such change  without the support of a  substantial  number of
non-Horejsi shareholders.  However, in these instances, where an action requires
a majority or  two-thirds  voting  approval,  the EH Trust may have an effective
veto.

Together with other trusts and entities affiliated with the Horejsi family (more
particularly  defined  below as the  "Horejsi  Affiliates"),  the EH  Trust  has
asserted control with respect to two other investment  companies,  Boulder Total
Return Fund, Inc.  ("BTF") and First Financial Fund, Inc.  ("FF").  As discussed
below,  the  Horejsi  Affiliates  also  own the  Advisers  and FAS,  the  Fund's
co-administrator.   The  following   table  shows  security   ownership  by  the
Independent Directors with respect to BTF and FF as of December 31, 2004.



Name of Director           Company         Title of Class        Value of        Percent of Class
                                                              Securities (1)
                                                                               


Joel W. Looney               BTF               Common             $_____           Less than 1%
                             FF                Common             $_____           Less than 1%
Alfred G. Aldridge           BTF               Common             $_____           Less than 1%
                             FF                Common             $_____           Less than 1%
Richard I. Barr              BTF               Common             $_____           Less than 1%
                             FF                Common             $_____           Less than 1%
Dennis R. Causier            BTF               Common               $0             Less than 1%
                             FF                Common               $0             Less than 1%

(1) Closing price on December 31, 2004.


Direct ownership of the Fund's common stock by all officers and directors of the
Fund is less than one percent. John Horejsi, an interested director of the Fund,
is a  discretionary  beneficiary  of the EH  Trust  and  may be  deemed  to have
indirect  beneficial  ownership  of the common  stock held by the EH Trust.  Mr.
Horejsi disclaims all such beneficial  ownership.  Mr. Horejsi does not directly
own any shares of the Fund. Stephen Miller, the Fund's president,  is an officer
and  director  of  Badlands  and may be  deemed  to have  in  direct  beneficial
ownership of the common stock held by the EH Trust. However,  because two of the
EH  Trustees  are  required  in  order  for the EH  Trust  to  vote or  exercise
dispositive  authority with respect to shares owned by the EH Trust,  Mr. Miller
disclaims beneficial ownership of such shares.

The names of the  officers of the Fund and certain  additional  information  are
listed in the table below.  Each officer was elected to office by the Board at a
meeting  held on April 26,  2005.  Each  officer  will hold such office  until a
successor has been elected by the Board.





                               Position, Length of Term
Name, Address, Age                Served, and Term of     Principal Occupation(s) and Other Directorships Held
                                        Office                         During the Past Five Years
                                                    
Stephen C. Miller              President of the Fund      President of and General Counsel for BIA, since 1999;
1680 38th Street,              since January 2002 and     Manager, FAS, since 1999; Vice President of SIA, since
Suite 800                      Director from January      ______; Director and President of Boulder Total Return
Boulder, CO 80301              2002 through October       Fund, Inc., since 1999 (resigned as Director in 2004);
Age:  52                       2004.  Appointed           Director and President of First Financial Fund, Inc.
                               annually.                  since 2003 (resigned as Director and Chairman in 2004);
                                                          President and General Counsel, Horejsi, Inc.
                                                          (liquidated in 1999); General Counsel, Brown
                                                          Welding Supply, LLC (sold in 1999);
                                                          officer of various other entities
                                                          affiliated with the Horejsi family; Of
                                                          Counsel, Krassa & Miller, LLC since 1991.

Carl D. Johns                  Chief Financial Officer,   Vice President and Treasurer of BIA and Assistant
1680 38th Street,              Chief Accounting           Manager of FAS, since April, 1999; Vice President, Chief
Suite 800                      Officer, Vice President    Financial Officer and Chief Accounting Officer, Boulder
Boulder, CO 80301              and Treasurer since        Total Return Fund, Inc., since 1999 and First Financial
Age: 41                        January 2002.  Appointed   Fund, Inc., since August 2003.
                               annually.

Stephanie J. Kelley            Secretary since January    Secretary, Boulder Total Return Fund, Inc., since
1680 38th Street,              2002.  Appointed           October 2000 and First Financial Fund, Inc., since
Suite 800                      annually.                  August 2003; Assistant Secretary and Assistant Treasurer
Boulder, CO 80301                                         of various other entities affiliated with the Horejsi
Age:  48                                                  family; Employee, FAS, since March 1999.

Nicole L. Murphey              Assistant Secretary        Assistant Secretary, Boulder Total Return Fund, Inc.,
1680 38th Street,              since January 2002.        since October 2000 and First Financial Fund, Inc. since
Suite 800                      Appointed annually.        August 2003; Employee, FAS, since July 1999.
Boulder, CO 80301
Age:  28

Candace Cavalier               Assistant Secretary        Assistant Secretary, Boulder Total Return Fund, Inc. and
200 Clarendon Street           since April 2005.          First Financial Fund, Inc. since January 2005; Associate
Boston, MA 02116               Appointed annually         Counsel, Investors Bank & Trust Company, since March
Age: 33                                                   2004; Consultant at Deutsche Asset Management from
                                                          September 2002 to Sept 2003; Associate at Hinckley, Allen &
                                                          Snyder LLP from July 2001 to July 2002; Staff Attorney at
                                                          Securities and Exchange Commission from September 1998 to
                                                          June 2001.

Laura Healy                    Assistant Treasurer        Assistant Treasurer, Boulder Total Return Fund, Inc. and
200 Clarendon Street           since January 2005.        First Financial Fund, Inc. since January 2005; Senior
Boston, MA 02116               Appointed annually.        Director, Investors Bank & Trust Company, since January
Age: 41                                                   2002; Assistant Treasurer at MFS Investment Management
                                                          from December 1996 to January 2002.

Janice Desmond                 Assistant Treasurer        Assistant Treasurer, Boulder Total Return Fund, Inc. and
200 Clarendon Street           since January 2005.        First Financial Fund, Inc. since January 2005; Director,
Boston, MA 02116               Appointed annually.        Investors Bank & Trust Company, since January 2005; Vice
Age: 54                                                   President of Deutsche Asset Management from February
                                                          2001 to January 2005; Assistant Vice President of
                                                          Wellington Asset Management from September 1999 to
                                                          February 2001.


INFORMATION  REGARDING  THE ADVISERS AND OTHER  SERVICE  PROVIDERS.  The Fund is
co-advised  by BIA and SIA.  Since  January  of 2002,  the  Advisers  have  been
providing advisory services to the Fund and, since March of 1999, to the Boulder
Total Return Fund, Inc. As of July ___, 2005, the Advisers had a total of $_____
million in assets under management.



BOULDER INVESTMENT ADVISERS, LLC. BIA was formed on April 8, 1999, as a Colorado
limited liability  company and is registered as an investment  adviser under the
Investment  Advisers Act of 1940,  as amended.  Together with SIA, BIA serves as
the investment co-adviser to two registered closed-end investment companies, the
Fund and Boulder Total Return Fund, Inc (together,  the "Boulder Funds"). At the
present time, BIA has only one other client,  also co-advised with SIA, which is
an affiliated private foundation, the Horejsi Charitable Foundation.  Stewart R.
Horejsi is an  employee of and  investment  manager  for both  Advisers  and has
extensive  experience  managing  common  stocks  for the Fund as well as for the
various  other  trusts and  entities  affiliated  with the  Horejsi  family (the
"Horejsi  Affiliates").  The  members  of BIA are  Evergreen  Atlantic,  LLC,  a
_________,  located at 1680 38th Street, Suite 800, Boulder,  Colorado 80301 and
the Lola Brown  Trust No.  1B, an  irrevocable  Alaska  domiciled  trust,  whose
address is c/o Badlands Trust Company, LLC, 3601 C Street, Suite 600, Anchorage,
Alaska 99503 (the  "Members").  The Members each hold a 50% interest in BIA. The
Members  are  "affiliated  persons"  of the Fund (as that term is defined in the
1940 Act).  Both Mr. Horejsi and John S. Horejsi,  Mr.  Horejsi's son and one of
the Fund's  "interested"  directors,  are discretionary  beneficiaries under the
Lola Brown Trust No. 1B as well as under other Horejsi family  affiliated trusts
which  own  Evergreen  Atlantic,   LLC.   Accordingly,   as  a  result  of  this
relationship,  both  Stewart R.  Horejsi  and John S.  Horejsi  may  directly or
indirectly benefit from the relationship between the Fund and BIA.

STEWART INVESTMENT ADVISERS.  SIA is a Barbados  international business company,
incorporated on November 12, 1996. As discussed above,  SIA,  together with BIA,
serves  as the  investment  co-adviser  to the  Boulder  Funds  and the  Horejsi
Charitable  Foundation,  which  presently are SIA's only clients.  SIA is wholly
owned by the Stewart  West Indies  Trust,  an  irrevocable  trust  domiciled  in
Alaska,  established  by Stewart  Horejsi in 1996 primarily to benefit his issue
(the "West Indies Trust"). The West Indies Trust's address is c/o Badlands Trust
Company, LLC, 3601 C Street, Suite 600, Anchorage,  Alaska 99503. Mr. Horejsi is
not a beneficiary  under the West Indies Trust.  However,  John S. Horejsi,  Mr.
Horejsi's  son  and  the  Fund's  "interested"   director,  is  a  discretionary
beneficiary  under  the  West  Indies  Trust  and  thus,  as a  result  of  this
relationship,  may directly or indirectly benefit from the relationship  between
SIA and the Fund.

SIA is not  domiciled in the United States and  substantially  all of its assets
are located  outside the United  States.  As a result,  it may be  difficult  to
realize  judgments  of  courts  of  the  United  States  predicated  upon  civil
liabilities  under federal  securities  laws of the United States.  The Fund has
been advised that there is  substantial  doubt as to (i) the  enforceability  in
Barbados of such civil  remedies and  criminal  penalties as are afforded by the
federal  securities  laws of the United  States,  (ii)  whether the  appropriate
foreign  courts would  enforce  judgments of United  States  courts  obtained in
actions  against  SIA  predicated  upon the civil  liability  provisions  of the
federal securities laws, or (iii) whether a Barbados court would enforce,  in an
original action, liabilities against SIA predicated solely on federal securities
laws.  Pursuant to the  advisory  agreement  between  SIA and the Fund,  SIA has
appointed  the  Secretary of the Fund  (presently  Stephanie  Kelley in Boulder,
Colorado)  as its agent for service of process in any legal action in the United
States, thus subjecting it to the jurisdiction of the United States courts.

PORTFOLIO MANAGERS.  Stewart R. Horejsi is the Fund's primary investment manager
and,  together with Carl D. Johns,  the Fund's Vice President and Treasurer,  is
responsible for the day-to-day  management of the Fund's assets and is primarily
responsible for the Fund's asset allocation. Mr. Horejsi has been an employee of
both BIA and SIA since ______.  Mr. Horejsi has been the President or Manager of
various  subsidiaries of various Horejsi family  affiliates since June 1986, and
the  investment  manager for various  Horejsi  Affiliates  since 1982.  He was a
director of the Boulder Total Return Fund,  Inc. until November,  2001;  General
Manager of Brown  Welding  Supply,  LLC from 1994 until 1999;  and a director of
Sunflower  Bank  from  ____ to ____.  Mr.  Horejsi  has been  the  Director  and
President of the Horejsi Charitable  Foundation,  Inc. since 1997. He received a
Masters  Degree in Economics  from Indiana  University in 1961 and a Bachelor of
Science Degree in Industrial Management from the University of Kansas in 1959.

Carl D. Johns,  the Fund's Vice President and Treasurer,  is also Vice President
and  Treasurer  for BIA and,  together  with Mr.  Horejsi,  is  responsible  for
research,  managing  the Fund's  fixed  income  portfolio  and BIA's  day-to-day
advisory  activities.  He has worked for BIA since 1999. Since 1999, he has been
Chief Financial Officer,  Chief Accounting Officer, Vice President and Treasurer
of the Boulder Total Return Fund,  Inc. Mr. Johns is also the assistant  manager
of FAS.  Prior to joining  BIA,  Mr.  Johns  worked at  Flaherty  and  Crumrine,
Incorporated,  from  1992  to  1998.  During  that  period  he was an  Assistant
Treasurer  for the Preferred  Income Fund  Incorporated,  the  Preferred  Income
Opportunity  Fund  Incorporated,   and  the  Preferred  Income  Management  Fund
Incorporated. Mr. Johns received a Bachelors degree in Mechanical Engineering at
the  University  of Colorado in 1985,  and a Masters  degree in Finance from the
University of Colorado in 1991.

Additional  information  regarding the portfolio managers'  compensation,  other
accounts  managed and  ownership of Fund shares is included in the  Statement of
Additional Information.

THE INVESTMENT CO-ADVISORY AGREEMENTS.  The Advisers and the Fund are parties to
investment  co-advisory  agreements  dated as of April 26,  2002 (the  "Advisory
Agreements").  Under the terms of the Advisory Agreements,  the Advisers provide
advisory  services  regarding  asset  allocation,  manage the  investment of the
Fund's assets and provide such investment research,  advice and supervision,  in
conformity with the Fund's investment  objective and policies,  as necessary for
the operations of the Fund. The Advisory Agreements provide, among other things,
that the Advisers will bear all expenses in connection  with the  performance of
their  services  under  the  Advisory  Agreements,  although  the Fund will bear
certain other expenses to be incurred in its operation, including organizational
expenses,  taxes,  interest,  brokerage costs and commissions and stock exchange
fees;  fees of  Directors  of the Fund who are not also  officers,  directors or
employees of the Advisers;  Securities and Exchange  Commission fees; state Blue
Sky qualification fees; insurance premiums; outside auditing and legal expenses;
costs  of  maintenance  of  the  Fund's  existence;  membership  fees  in  trade
associations; stock exchange listing fees and expenses; and litigation and other
extraordinary or non-recurring expenses.



The  Advisory  Agreements  provide  that the Fund shall pay to the  Advisers for
their  services  an  aggregate  monthly  fee at the annual  rate of 1.25% of the
Fund's average  monthly net assets (the "Adviser Fee")  (including the principal
amount of leverage,  if any).  Under the terms of the Advisory  Agreements,  the
Advisers split the Adviser Fee as determined by the Advisers and approved by the
Board from time to time. Presently, the Adviser Fee is split between BIA and SIA
25% and 75%, respectively.  Although the Advisers intend to devote such time and
effort to the business of the Fund as is  reasonably  necessary to perform their
respective  duties to the Fund,  the services of the Advisers are not  exclusive
and the Advisers may provide similar services to other investment  companies and
other clients and may engage in other activities.

The Advisory  Agreements  provide that the Advisers  shall not be liable for any
error of judgment or mistake of law or omission or any loss suffered by the Fund
in  connection  with the matters to which the  agreements  relate,  although the
agreements  do not  protect  or  purport to protect  the  Advisers  against  any
liability to the Fund to which the Advisers would otherwise be subject by reason
of  willful  misfeasance,  bad faith or gross  negligence  on their  part in the
performance  of  their  duties  or from  reckless  disregard  by  them of  their
obligations  and duties  under the  agreements.  Each  Advisory  Agreement  also
provides for  indemnification  by the Fund of the  Advisers and their  partners,
members,  officers,  employees,  agents  and  control  persons  for  liabilities
incurred  by them in  connection  with their  services  to the Fund,  subject to
certain limitations and conditions.

Each Advisory  Agreement  will continue in effect  without a term so long as its
continuation is specifically  approved at least annually by both (i) the vote of
a majority  of the Board or the vote of a  majority  of the  outstanding  voting
securities of the Fund (as such term is defined in the 1940 Act) and (ii) by the
vote  of a  majority  of the  directors  who are not  parties  to such  Advisory
Agreement or interested persons (as such term is defined in the 1940 Act) of any
such party, cast in person at a meeting called for the purpose of voting on such
approval.  Any of the Advisory  Agreements  may be  terminated as a whole at any
time by the  Fund,  without  the  payment  of any  penalty,  upon  the vote of a
majority of the Board or a majority of the outstanding  voting securities of the
Fund or by the Advisers on 60 days' written notice by either party to the other.
Except as otherwise provided by order of the Securities and Exchange  Commission
or any rule or provision of the 1940 Act, each of the Advisory  Agreements  will
terminate  automatically  in the  event of  their  assignment  (as such  term is
defined in the 1940 Act and the rules thereunder).

FUND  ADMINISTRATIVE   SERVICES,   LLC.  The  Fund's  co-administrator  is  Fund
Administrative  Services,  LLC  ("FAS" or the  "Administrator").  FAS  (formerly
Boulder  Administrative  Services,  LLC) is a Colorado limited liability company
whose  principal  place of business  is 1680 38th  Street,  Suite 800,  Boulder,
Colorado  80301.  The  members  of FAS are Lola  Brown  Trust  No.  1B (50%) and
Evergreen Atlantic, L.L.C. (50%) (the "Members"), each of which is considered to
be an  "affiliated  person" of the Fund as that term is defined in the 1940 Act.
The officers of FAS are Stephen C.  Miller,  manager;  Carl D. Johns,  assistant
manager; Laura Rhodenbaugh, secretary/treasurer; and Stephanie Kelley, assistant
secretary.  Since January of 2002, FAS has been providing certain administrative
and  executive  management  services to the Fund,  including  among other things
negotiation  of service  provider  contracts,  oversight  of service  providers,
maintenance of the Fund's policies and procedures,  and provision of compliance,
legal and fund accounting  services.  FAS has also provided such  administrative
and executive  management  services to the Boulder Total Return Fund, Inc. since
March of 1999, and to First Financial Fund, Inc. since August of 2003.

The Fund and FAS are parties to an  Administration  Agreement  dated February 1,
2004 (the  "Administration  Agreement").  FAS is owned by the  Members,  who, as
indicated  above,  are also the  owners  of BIA and are  included  in the  group
referred to herein as the Horejsi  Affiliates.  As discussed above, both Stewart
R. Horejsi and his son John S. Horejsi,  the Fund's only "interested"  director,
are  discretionary  beneficiaries  under the Lola Brown Trust No. 1B, one of the
Members of FAS, and under the trusts that own Evergreen Atlantic, LLC, the other
Member of FAS.

Under the Administration  Agreement,  the Fund pays FAS a monthly fee calculated
at an annual rate of 0.20% of the value of the Fund's average monthly net assets
up to $250 million;  0.18% of the Fund's average  monthly net assets on the next
$150 million;  and, 0.15% on the value of the Fund's average monthly assets over
$400  million.  Notwithstanding,   FAS  has  agreed  to  cap  the  Fund's  total
administration  costs at  0.30%  (including  administration,  co-administration,
transfer  agent and  custodian  fees).  Accordingly,  FAS has  agreed to waive a
portion of its fee  should  the total  monthly  administration  expenses  exceed
0.30%.

INVESTORS  BANK & TRUST  COMPANY.  Investors  Bank & Trust  Company  ("Investors
Bank"), located at 200 Clarendon Street, Boston,  Massachusetts 02116, serves as
the Fund's co-administrator and custodian.  As co-administrator,  Investors Bank
provides certain services including fund accounting and preparation of materials
for Board  meetings.  Under an  administration  agreement and custody  agreement
between the Fund and Investors  Bank,  the Fund pays  Investors  Bank a combined
monthly fee for both  co-administrative  and custodian services calculated at an
annual rate of 0.058% of the value of the Fund's  average  monthly net assets up
to $300 million and 0.04% on the value of the Fund's average  monthly net assets
over $300 million,  or a minimum monthly fee of $10,500.  Presently,  because of
the level of the Fund's average monthly net assets, the Fund pays the minimum of
$10,500  monthly.  In addition,  Investors Bank receives  certain  out-of-pocket
expenses,  transaction fees and certain charges for securities transactions. All
customary fees of the custodian are paid by the Fund.

PFPC INC. The transfer agent,  dividend  disbursing  agent and registrar for the
common  shares of the Fund is PFPC Inc.  ("PFPC"),  an indirect,  majority-owned
subsidiary of the PNC  Financial  Services  Group,  Inc. PFPC is located at 4400
Computer Drive, Westborough, MA 01581-5120. As compensation for PFPC's services,
the Fund pays PFPC a monthly fee plus certain out-of-pocket expenses.





                         DESCRIPTION OF PREFERRED SHARES

The  following is a brief  description  of the material  terms of the  Preferred
Shares.  For the complete  terms of the  Preferred  Shares,  please refer to the
detailed  description  of the  Preferred  Shares in the  Articles  Supplementary
(Appendix C to the Statement of Additional Information).

GENERAL.  The Articles of Amendment and Restatement of the Fund filed on May 18,
2004 authorize the issuance of an unlimited number of preferred shares in one or
more  classes or series  with  rights as  determined  by the Board  without  the
approval of common  shareholders.  The Preferred  Shares will have a liquidation
preference of $25,000 per share,  plus an amount equal to accumulated but unpaid
dividends (whether or not earned or declared).

The Preferred  Shares are preferred shares that entitle their holders to receive
dividends when, as and if declared by the Board, out of funds legally  available
therefor, at a rate per annum that may vary for successive dividend periods. The
applicable rate for a particular  dividend period for the Preferred  Shares will
be  determined  by an auction  conducted on the business day before the start of
such  dividend  period.  Beneficial  owners and potential  beneficial  owners of
Preferred  Shares may participate in auctions,  although,  except in the case of
special dividend periods of longer than 91 days,  beneficial  owners desiring to
continue to hold all of their Preferred Shares regardless of the applicable rate
resulting  from auctions need not  participate  in order to continue to hold the
Preferred  Shares.  For an explanation of auctions and the method of determining
the applicable rate, see "Dividends and Rate Periods" and "The Auction" below.

The nominee of the  Securities  Depository  is expected to be the sole holder of
record of the Preferred Shares.  Accordingly,  each purchase of Preferred Shares
must  rely on (i) the  procedures  of the  Securities  Depository  and,  if such
purchaser is not a member of the Securities  Depository,  such purchaser's Agent
Member (members of DTC that will act on behalf of existing or potential  holders
of  Preferred  Shares  are  referred  to herein as "Agent  Member"),  to receive
dividends,  distributions and notices and to exercise voting rights (if and when
applicable)  and (ii) the  records of the  Securities  Depository  and,  if such
purchaser is not a member of the Securities  Depository,  such purchaser's Agent
Member, to evidence its beneficial ownership of the Preferred Shares.

The  Preferred  Shares  will rank on parity with any other  series of  preferred
shares of the Fund as to the payment of dividends and the distribution of assets
upon liquidation.  Each share of Preferred Shares carries one vote on matters on
which Preferred Shares can be voted.  When issued and sold, the Preferred Shares
will have a liquidation  preference of $25,000 per share plus an amount equal to
accumulated  but unpaid  dividends  (whether or not  declared) and will be fully
paid and  non-assessable.  See "Liquidation." The Preferred Shares, when issued,
will be fully paid and  non-assessable  and have no  preemptive,  conversion  or
cumulative  voting rights.  The Preferred  Shares will not be  convertible  into
common shares or other shares of the Fund, and the holders  thereof will have no
preemptive  rights. The Preferred Shares will not be subject to any sinking fund
but will be subject  to  redemption  at the  option of the Fund on any  dividend
payment date for the Preferred Shares (except during the initial dividend period
and during a Non-Call  Period) at a redemption  price generally equal to $25,000
per share plus accumulated and unpaid dividends.  In certain circumstances,  the
Preferred  Shares  will be  subject  to  mandatory  redemption  by the Fund at a
redemption price of $25,000 per share plus accumulated and unpaid dividends. See
"Redemption."

DIVIDENDS AND RATE PERIODS.

     GENERAL.  The  following is a general  description  of  dividends  and rate
periods for the  Preferred  Shares.  The initial  rate period for the  Preferred
Shares will be _____days  and the dividend  rate for this period will be _____%.
Subsequent  rate  periods  will  be 28  days,  and  the  dividend  rate  will be
determined by auction.  The Fund, subject to certain conditions,  may change the
length of subsequent  rate periods by designating  them as special rate periods.
See "Designation of Special Rate Periods" below.

     DIVIDEND PAYMENT DATES.  Dividends on the Preferred Shares will be payable,
when,  as and if  declared  by the  Board,  out of  legally  available  funds in
accordance  with  the  Fund's  Charter  and  applicable  law.  Dividend  periods
generally  will begin on the first  business day after an auction.  If dividends
are payable on a day that is not a business day, then  dividends  will generally
be  payable  on the next  day if such day is a  business  day,  or as  otherwise
specified in the  Articles  Supplementary.  If a dividend  payment date is not a
business  day  because  the NYSE is closed  for  business  for more  than  three
consecutive  business days due to an act of God, natural  disaster,  act of war,
civil or military disturbance,  act of terrorism,  sabotage,  riots or a loss or
malfunction of utilities or communications  services, or the dividend payable on
such date cannot be paid for any such reason, then:

     o    the dividend payment date for the affected dividend period will be the
          next business day on which the Fund and its paying agent,  if any, are
          able to cause the  dividend  to be paid using  their  reasonable  best
          efforts;

     o    the affected  dividend  period will end on the day it would have ended
          had such event not occurred and the dividend payment date had remained
          the scheduled date; and

     o    the next  dividend  period will begin and end on the dates on which it
          would  have  begun  and  ended had such  event  not  occurred  and the
          dividend payment date remained the scheduled date.

Dividends  will be paid through DTC on each dividend  payment date. The dividend
payment date will normally be the first  business day after the dividend  period
ends. DTC, in accordance with its current procedures,  is expected to distribute
dividends  received  from the Auction  Agent in same-day  funds on each dividend
payment  date to Agent  Members.  These Agent  Members  are in turn  expected to
distribute  such  dividends  to the  persons for whom they are acting as agents.
Each of the  current  Broker-Dealers  has  indicated  to the Fund that  dividend
payments will be available in same-day  funds on each  dividend  payment date to
customers  that  use a  Broker-Dealer  or a  Broker-Dealer's  designee  as Agent
Member.



     CALCULATION OF DIVIDEND PAYMENT.  The Fund computes the dividends per share
payable on the Preferred  Shares by multiplying the applicable rate in effect by
a fraction.  The  numerator of this fraction will normally be the number of days
in the rate period and the  denominator  will normally be 360. This rate is then
multiplied  by $25,000 to arrive at the  dividends  per share.  Dividends on the
Preferred Shares will accumulate from the date of their original issue, which is
_________, 2005. For each dividend payment period after the initial rate period,
the dividend will be the dividend rate determined at auction.  The dividend rate
that results from an auction will not be greater than the maximum rate described
below.

     DETERMINATION OF MAXIMUM  APPLICABLE RATE. The maximum  applicable rate for
any regular  period will be the higher of (as set forth in the table  below) the
applicable  percentage of the Reference Rate or the  applicable  spread plus the
Reference Rate. The Reference Rate is the applicable  LIBOR Rate (for a dividend
period or a special  dividend  period of fewer than 365 days), or the applicable
Treasury Index Rate (for a special  dividend period of 365 days or more). In the
case of a special rate period,  the maximum applicable rate will be specified by
the Fund in the notice of the  special  rate  period for such  dividend  payment
period. The applicable  percentage or applicable spread is determined on the day
that a notice of a special rate period is  delivered  if the notice  specifies a
maximum applicable rate for a special rate period. The applicable  percentage or
applicable  spread will be determined based on the lower of the credit rating or
ratings assigned to the Preferred Shares by Moody's and Fitch.

The "LIBOR Rate," as described in greater detail in the Articles  Supplementary,
is the applicable  London  Inter-Bank  Offered Rate for deposits in U.S. dollars
for the period most closely approximating the applicable dividend period for the
Preferred Shares.

The  "Treasury  Index  Rate," as  described  in greater  detail in the  Articles
Supplementary,  is the average  yield to  maturity  for  certain  U.S.  Treasury
securities  having  substantially  the same length to maturity as the applicable
dividend period for the Preferred Shares.



                       Applicable Percentage Payment Table

                                               Applicable
             Credit Ratings                    Percentage       Applicable Spread
      Moody's           Fitch
                                                       
   Aaa                  AAA                    125%             1.25%
   Aa3 to Aa1           A- to AA+              150%             1.50%
   A3 to A1             A- to A+               200%             2.00%
   Baa3 to Baa1         BBB- to BBB+           250%             2.50%
   Ba1 and lower        BB+ and lower          300%             3.00%



Assuming  the Fund  maintains an Aaa/AAA  rating on the  Preferred  Shares,  the
practical  effect  of the  different  methods  used  to  calculate  the  maximum
applicable rate is shown in the table below:



                       Maximum Applicable
                        Rate Using the      Maximum Applicable      Method Used to
                          Applicable         Rate Using the       Determine the Maximum
   Reference Rate      Percentage          Applicable Spread      Applicable Rate
                                                         
   1%                  1.25%               2.25%                  Spread
   2%                  2.50%               3.25%                  Spread
   3%                  3.75%               4.25%                  Spread
   4%                  5.00%               5.25%                  Spread
   5%                  6.25%               6.25%                  Either
   6%                  7.50%               7.25%                  Percentage



The Board may amend the  maximum  applicable  rate to  increase  the  percentage
amount by which the Reference Rate described above is multiplied, or to increase
the spread added to the Reference Rate, to determine the maximum applicable rate
shown  without the vote or consent of the holders of  Preferred  Shares,  or any
other  shareholder  of the Fund,  but only with  confirmation  from each  rating
agency  then rating the  Preferred  Shares that such action will not impair such
agency's then-current rating of the Preferred Shares,  provided that immediately
following  any such  increase  the Fund could meet the  Preferred  Shares  Basic
Maintenance  Amount test  discussed  below under "Rating  Agency  Guidelines and
Asset Coverage."



Prior to each dividend  payment  date,  the Fund is required to deposit with the
Auction  Agent  sufficient  funds for the  payment of  declared  dividends.  The
failure to make such deposit will result in the  cancellation of any auction and
the  dividend  rate will be the maximum  applicable  rate until such  failure to
deposit  is cured or, if not timely  cured,  a  non-payment  rate of 300% of the
applicable  Reference  Rate.  The Fund does not intend to establish any reserves
for the payment of dividends.

     RESTRICTIONS  ON  DIVIDENDS  AND  OTHER  DISTRIBUTIONS.  While  any  of the
Preferred  Shares are outstanding,  the Fund,  except as provided below, may not
declare,  pay or set apart for payment,  any dividend or other  distribution  in
respect of its common shares. In addition,  the Fund may not call for redemption
or redeem any of its common  shares.  However,  the Fund is not  confined by the
above restrictions if:

     o    immediately after such transaction, the discounted value of the Fund's
          portfolio would be equal to or greater than the Preferred Shares Basic
          Maintenance  Amount  and the value of the  Fund's  portfolio  would be
          equal to or greater than the 1940 Act Preferred  Share Asset  Coverage
          (see "Rating Agency Guidelines and Asset Coverage" below);

     o    full cumulative  dividends on the Preferred  Shares due on or prior to
          the date of the transaction  have been declared and paid or shall have
          been declared and sufficient  funds for the payment thereof  deposited
          with the Auction Agent; and

     o    the Fund has redeemed the full number of Preferred  Shares required to
          be redeemed by any provision for mandatory redemption contained in the
          Articles Supplementary.

The Fund generally  will not declare,  pay or set apart for payment any dividend
on any  class or series of shares  of the Fund  ranking,  as to the  payment  of
dividends,  on a parity with  Preferred  Shares unless the Fund has declared and
paid or  contemporaneously  declares and pays full  cumulative  dividends on the
Preferred  Shares through its most recent dividend payment date.  However,  when
the Fund has not paid  dividends in full upon the Preferred  Shares  through the
most recent dividend payment date or upon any other class or series of shares of
the Fund  ranking,  as to the payment of dividends,  on a parity with  Preferred
Shares through their most recent  respective  dividend payment dates, the amount
of  dividends  declared  per share on  Preferred  Shares and such other class or
series  of shares  will in all cases  bear to each  other  the same  ratio  that
accumulated  dividends  per share of  Preferred  Shares and such other  class or
series of shares bear to each other.

     DESIGNATION OF SPECIAL RATE PERIODS.  The Fund may, in certain  situations,
declare a special  rate period.  Prior to  declaring a special rate period,  the
Fund will give notice (a "notice of special rate  period") to the Auction  Agent
and to each  Broker-Dealer.  The notice will state that the next succeeding rate
period for the  Preferred  Shares will be a number of days as  specified in such
notice.  The Fund may not  designate  a special  rate period  unless  sufficient
clearing bids were made in the most recent auction. In addition, full cumulative
dividends,  any  amounts  due with  respect  to  mandatory  redemptions  and any
additional  dividends  payable  prior  to  such  date  must  be  paid in full or
deposited with the Auction Agent. The Fund also must have received  confirmation
from Moody's and Fitch or any substitute rating agency that the proposed special
rate period will not adversely affect such agency's  then-current  rating on the
Preferred  Shares and the  Underwriter  designated by the Fund,  initially [Lead
Underwriter],  must not have objected to declaration of a special rate period. A
notice of  special  rate  period  also will  specify  whether  the shares of the
Preferred Shares will be subject to optional redemption during such special rate
period and, if so, the redemption  premium,  if any,  required to be paid by the
Fund in connection with such optional redemption.

     NON-PAYMENT PERIOD AND LATE CHARGE. A "failure to deposit," with respect to
the Preferred  Shares,  means a failure by the Fund to pay to the Auction Agent,
not later than 12:00  noon,  New York City time,  (A) on the  business  day next
preceding any dividend  payment date for the Preferred Shares in funds available
on such dividend payment date in the City of New York, New York, the full amount
of any dividend  (whether or not earned or declared) to be paid on such dividend
payment date or (B) on the business day next  preceding any  redemption  date in
funds  available on such  redemption date in the City of New York, New York, the
redemption  price to be paid on such  redemption date after notice of redemption
is mailed;  provided,  however, that the foregoing clause (B) shall not apply to
the Fund's  failure to pay the redemption  price in respect of Preferred  Shares
when the related notice of redemption provides that redemption of such shares is
subject to one or more  conditions  precedent and any such  condition  precedent
shall not have been  satisfied at the time or times and in the manner  specified
in such notice of redemption. If a failure to deposit occurs but, prior to 12:00
noon, New York City time, on the third business day next  succeeding the date on
which such failure to deposit occurred,  such failure to deposit shall have been
cured and the Fund shall have paid to the  Auction  Agent a late  charge  ("Late
Charge")  equal to the sum of (1) if such  failure to deposit  consisted  of the
failure to timely pay to the  Auction  Agent the full amount of  dividends  with
respect to any dividend  period,  an amount  computed by multiplying (x) 300% of
the Reference Rate for the dividend  period during which such failure to deposit
occurs on the dividend  payment date for such dividend period by (y) a fraction,
the  numerator  of which  shall be the number of days for which such  failure to
deposit has not been cured (including the day such failure to deposit occurs and
excluding the day such failure to deposit is cured) and the denominator of which
shall be 360, and applying the rate obtained  against the aggregate  liquidation
preference  of the  outstanding  Preferred  Shares  and (2) if such  failure  to
deposit  consisted  of the  failure  to  timely  pay to the  Auction  Agent  the
redemption price of the shares,  if any, for which notice of redemption has been
mailed by the Fund, an amount  computed by multiplying (x) 300% of the Reference
Rate for the dividend  period during which such failure to deposit occurs on the
redemption date by (y) a fraction, the numerator of which shall be the number of
days for which such  failure to  deposit  is not cured  (including  the day such
failure  to  deposit  occurs and  excluding  the day such  failure to deposit is
cured) and the denominator of which shall be 360, and applying the rate obtained
against the aggregate  liquidation  preference of the  outstanding  shares to be
redeemed,  then no  auction  will be held  for the  subsequent  dividend  period
thereof and the dividend rate for such  subsequent  dividend  period will be the
maximum applicable rate on the auction date for such subsequent dividend period.
If any failure to deposit  shall have  occurred  with  respect to the  Preferred
Shares during any dividend  period  thereof,  and, prior to 12:00 noon, New York
City time,  on the third  business  day next  succeeding  the date on which such
failure to deposit  occurred,  such failure to deposit shall not have been cured
or the Fund shall not have paid the applicable Late Charge to the Auction Agent,
no auction will be held in respect of Preferred  Shares for the first subsequent
dividend  period  thereafter  (or  for any  dividend  period  thereafter  to and
including the dividend  period during which (1) such failure to deposit is cured
and (2) the Fund pays the  applicable  Late  Charge to the  Auction  Agent  (the
condition  set forth in this  clause (2) to apply  only in the event  Moody's is
rating such shares at the time the Fund cures such failure to deposit),  in each
case no later than 12:00 noon,  New York City time,  on the fourth  business day
prior to the end of such  dividend  period)  (a  "non-payment  period")  and the
dividend rate for each such subsequent dividend period shall be a rate per annum
(the "non-payment period rate") equal to 300% of the applicable  Reference Rate,
provided  that the Board shall have the  authority to adjust,  modify,  alter or
change  from time to time such  initial  rate if the  Board  determines  and the
rating  agencies (or any  substitute  rating  agency) advise the Fund in writing
that such  adjustment,  modification,  alteration  or change will not  adversely
affect the then-current ratings on the Preferred Shares.




REDEMPTION

     MANDATORY  REDEMPTION.  The Fund is required to maintain  (a) a  discounted
value of eligible  portfolio  securities  equal to the  Preferred  Shares  Basic
Maintenance Amount and (b) the 1940 Act Preferred Share Asset Coverage (at least
200% with  respect  to senior  securities  which are  equity  shares,  including
Preferred Shares).  Eligible portfolio  securities for purposes of the Preferred
Shares  Basic  Maintenance  Amount will be  determined  from time to time by the
rating agencies then rating the Preferred  Shares. If the Fund fails to maintain
such asset coverage  amounts and does not timely cure such failure in accordance
with the requirements of the rating agencies that rate the Preferred Shares, the
Fund must  redeem  all or a portion  of the  Preferred  Shares.  This  mandatory
redemption  will take  place on a date that the Board  specifies  out of legally
available  funds, in accordance with the Articles  Supplementary  and applicable
law, at the redemption  price of $25,000 per share plus  accumulated  but unpaid
dividends  (whether or not declared) to (but not  including)  the date fixed for
redemption.  The number of  Preferred  Shares  that must be redeemed in order to
cure such  failure will be allocated  pro rata among the  outstanding  Preferred
Shares.  The  mandatory  redemption  will be limited to the number of  Preferred
Shares  necessary,  after giving  effect to such  redemption,  in order that the
discounted  value of the Fund's portfolio equals or exceeds the Preferred Shares
Basic  Maintenance  Amount,  and the  value of the  Fund's  portfolio  equals or
exceeds the 1940 Act Preferred Share Asset  Coverage.  In determining the number
of Preferred  Shares  required to be redeemed in accordance  with the foregoing,
the Fund will  allocate the number of shares  required to be redeemed to satisfy
the Preferred  Shares Basic  Maintenance  Amount or the 1940 Act Preferred Share
Asset Coverage,  as the case may be, pro rata among the Preferred Shares and any
other preferred shares of the Fund subject to redemption or retirement. If fewer
than all  outstanding  shares are,  as a result,  to be  redeemed,  the Fund may
redeem such shares by lot or other method that it deems fair and equitable.

     OPTIONAL  REDEMPTION.  To the  extent  permitted  under  the  1940  Act and
Maryland law, the Fund at its option may,  without the consent of the holders of
Preferred  Shares,  redeem Preferred Shares having a dividend period of one year
or less,  in whole or in part,  on the  business  day after the last day of such
dividend  period  upon not less  than 15  calendar  days'  and not more  than 40
calendar  days' prior notice.  The optional  redemption  price per share will be
$25,000 per share,  plus an amount  equal to  accumulated  but unpaid  dividends
thereon  (whether or not earned or  declared)  to the date fixed for  redemption
plus the  premium,  if any,  resulting  from the  designation  of a Premium Call
Period.  Preferred  Shares  having a  dividend  period of more than one year are
redeemable at the option of the Fund,  in whole or in part,  prior to the end of
the relevant  dividend period,  subject to any specific  redemption  provisions,
which may  include  the payment of  redemption  premiums to the extent  required
under any applicable specific redemption provisions.  The Fund will not make any
optional  redemption  unless,  after  giving  effect  thereto,  (i) the Fund has
available  certain deposit  securities with maturities or tender dates not later
than the day preceding  the  applicable  redemption  date and having a value not
less than the  amount  (including  any  applicable  premium)  due to  holders of
Preferred  Shares by reason of the  redemption of Preferred  Shares on such date
fixed for the redemption and (ii) the Fund has eligible assets with an aggregate
discounted  value  at least  equal to the  Preferred  Shares  Basic  Maintenance
Amount.  Notwithstanding the foregoing,  Preferred Shares may not be redeemed at
the option of the Fund  unless  all  dividends  in  arrears  on the  outstanding
Preferred Shares,  including all outstanding  preferred shares, have been or are
being  contemporaneously  paid or set aside for payment.  This would not prevent
the lawful  purchase or  exchange  offer for  Preferred  Shares made on the same
terms to holders of all outstanding preferred shares.


LIQUIDATION

If the Fund is  liquidated,  the holders of  outstanding  Preferred  Shares will
receive the liquidation  preference,  plus all accumulated but unpaid dividends,
before any  payment  is made to the  holders of common  shares.  The  holders of
Preferred  Shares will be entitled to receive  these  amounts from the assets of
the Fund available for distribution to its shareholders. In addition, the rights
of holders of  Preferred  Shares to receive  these  amounts  are  subject to the
rights of holders of other preferred shares ranking on parity with the Preferred
Shares with respect to the  distribution of assets upon liquidation of the Fund.
After the payment to the holders of  Preferred  Shares of the full  preferential
amounts as  described,  the  holders of  Preferred  Shares will have no right or
claim to any of the remaining assets of the Fund.



For purpose of the foregoing paragraph,  a voluntary or involuntary  liquidation
of the Fund does not include:

     o    the sale of all or  substantially  all the property or business of the
          Fund;

     o    the  merger  or  consolidation  of the  Fund  into or with  any  other
          business trust or corporation; or

     o    the merger or consolidation of any other business trust or corporation
          into or with the Fund.

In addition,  none of the foregoing  would result in the Fund being  required to
redeem any  Preferred  Shares if after such  transaction  the Fund  continued to
comply with the rating agency guidelines and asset coverage ratios.

RATING AGENCY  GUIDELINES AND ASSET  COVERAGE.  It is expected that Moody's will
assign a rating of Aaa and Fitch  will  assign a rating of AAA to the  Preferred
Shares.  Securities  rated Aaa by Moody's are  considered by Moody's as the best
quality  investment grade securities and carry the smallest degree of investment
risk.  Interest payments are protected by a large or by an exceptionally  stable
margin and principal is secure. While the various protective elements are likely
to change,  the  changes  that can be expected  are most  unlikely to impair the
fundamentally  strong  position of such  issues.  Securities  rated AAA by Fitch
denote the lowest  expectation of credit risk. They are assigned only in case of
exceptionally strong capacity for timely payment of financial commitments.  This
capacity is highly unlikely to be adversely affected by foreseeable events.

The Fund is required  under  guidelines of Moody's and Fitch to maintain  assets
having in the  aggregate  a  discounted  value at least  equal to the  Preferred
Shares  Basic  Maintenance  Amount.  Moody's  and Fitch  have  each  established
separate  guidelines  for  calculating  discounted  value.  To  the  extent  any
particular portfolio holding does not satisfy a rating agency's guidelines,  all
or a portion of the holding's  value will not be included in the rating agency's
calculation of discounted  value.  The Moody's and Fitch  guidelines also impose
certain  diversification  requirements on the Fund's portfolio.  The Moody's and
Fitch  guidelines do not impose any  limitations on the percentage of the Fund's
assets that may be  invested  in holdings  not  eligible  for  inclusion  in the
calculation  of the  discounted  value of the  Fund's  portfolio.  The amount of
ineligible  assets  included  in the  Fund's  portfolio  at any  time  may  vary
depending  upon the rating,  diversification  and other  characteristics  of the
eligible  assets  included  in  the  portfolio.   The  Preferred   Shares  Basic
Maintenance Amount is the sum of (a) the aggregate liquidation preference of the
Preferred  Shares then  outstanding,  together  with the  aggregate  liquidation
preference on any other series of preferred shares (plus redemption  premium, if
any),  and  (b)  certain  accrued  and  projected  dividend  and  other  payment
obligations of the Fund.

The Fund is also required  under the 1940 Act to maintain the 1940 Act Preferred
Share Asset  Coverage.  The Fund's 1940 Act  Preferred  Share Asset  Coverage is
tested as of the last  business  day of each  month in which any  senior  equity
securities are outstanding.  The minimum required 1940 Act Preferred Share Asset
Coverage  amount  of 200%  may be  increased  or  decreased  if the  1940 Act is
amended.  Based on the  composition  of the  portfolio  of the  Fund and  market
conditions as of __________  2005,  the 1940 Act Preferred  Share Asset Coverage
with  respect to all of the Fund's  preferred  shares,  assuming the issuance on
that date of all  Preferred  Shares  offered  hereby  and  giving  effect to the
deduction  of  related  sales  load and  related  offering  costs  estimated  at
approximately $________ would have been computed as follows:


  Value of Fund assets less liabilities not          $            
       constituting senior securities
_____________________________________________   =    __________   = _________%

 Senior securities representing indebtedness
   plus liquidation value of the preferred           $
                   shares                            
                                                     
In the  event  the  Fund  does not  timely  cure a  failure  to  maintain  (a) a
discounted  value of its portfolio at least equal to the Preferred  Shares Basic
Maintenance  Amount or (b) the 1940 Act Preferred Share Asset Coverage,  in each
case in accordance  with the  requirements of the rating agency or agencies then
rating the  Preferred  Shares,  the Fund will be  required  to redeem  preferred
shares as described under "Redemption - Mandatory Redemption" above.

The Fund may, but is not required to, adopt any  modifications to the guidelines
that  may be  established  by  Moody's  or  Fitch.  Failure  to  adopt  any such
modifications,  however,  may result in a change in the ratings  assigned to the
Preferred Shares or a withdrawal of ratings altogether.  In addition, any rating
agency providing a rating for the Preferred  Shares may, at any time,  change or
withdraw any such rating. The Board may, without  shareholder  approval,  amend,
alter or repeal any or all of the definitions and related  provisions which have
been adopted by the Fund pursuant to the rating  agency  guidelines in the event
such rating agency is no longer rating the Preferred Shares or the Fund receives
written  confirmation  from Moody's or Fitch,  as the case may be, that any such
amendment, alteration or repeal would not impair the rating then assigned to the
Preferred Shares.

As recently  described  by Moody's and Fitch,  a  preferred  stock  rating is an
assessment of the capacity and  willingness of an issuer to pay preferred  stock
obligations.  The  rating on the  Preferred  Shares is not a  recommendation  to
purchase,  hold or sell those shares, inasmuch as the rating does not comment as
to market price or  suitability  for a particular  investor.  The rating  agency
guidelines  described  above also do not address the likelihood that an owner of
Preferred  Shares will be able to sell such  shares in an auction or  otherwise.
The rating is based on current information furnished to Moody's and Fitch by the
Fund and the Adviser and information obtained from other sources. The rating may
be  changed,  suspended  or  withdrawn  as  a  result  of  changes  in,  or  the
unavailability of, such information.  The common shares have not been rated by a
nationally recognized statistical rating organization.



The rating agency's  guidelines will apply to the Preferred  Shares only so long
as the rating  agency is rating the shares.  The Fund will pay  certain  fees to
Moody's and Fitch for rating the Preferred Shares.

VOTING RIGHTS.  Except as otherwise  provided in this prospectus or as otherwise
required by law,  holders of Preferred Shares will have equal voting rights with
holders of common shares and any other preferred shares (one vote per share) and
will vote together  with holders of common shares and any preferred  shares as a
single class.

Holders of outstanding preferred shares, including Preferred Shares, voting as a
separate class, are entitled to elect two of the Fund's Directors. The remaining
Directors  are  elected  by  holders  of common  shares  and  preferred  shares,
including  Preferred  Shares,  voting  together as a single  class.  The term of
Directors  elected by holders of preferred stock,  such as the Preferred Shares,
will terminate  automatically upon redemption in full of the preferred stock. If
at any time  dividends  (whether  or not  earned  or  declared)  on  outstanding
preferred shares,  including  Preferred Shares,  are due and unpaid in an amount
equal  to two  full  years  of  dividends,  and  sufficient  cash  or  specified
securities  have not been  deposited  with the Auction  Agent for the payment of
such  dividends,  then,  the sole  remedy of  holders of  outstanding  preferred
shares, including Preferred Shares, is that the number of Directors constituting
the Board will be  automatically  increased  by the smallest  number that,  when
added to the two  Directors  elected  exclusively  by the  holders of  preferred
shares,  including  Preferred  Shares,  as described  above,  would constitute a
majority of the Board.  The holders of  preferred  shares,  including  Preferred
Shares,  will be entitled to elect that smallest number of additional  Directors
at a special  meeting of  shareholders as soon as possible and at all subsequent
meetings  at which  Directors  are to be  elected.  The  terms of  office of the
persons who are  Directors at the time of that election  will  continue.  If the
Fund  thereafter  shall pay, or declare and set apart for payment,  in full, all
dividends  payable on all  outstanding  preferred  shares,  including  Preferred
Shares,  the special  voting  rights  stated above will cease,  and the terms of
office of the additional  Directors  elected by the holders of preferred shares,
including Preferred Shares, will automatically terminate.

As long as any Preferred Shares are outstanding,  the Fund will not, without the
affirmative  vote or  consent  of the  holders  of at  least a  majority  of the
Preferred Shares outstanding at the time (voting together as a separate class):

     (a) authorize,  create or issue any class or series of shares ranking prior
to or on a parity with the Preferred Shares with respect to payment of dividends
or the  distribution  of assets on  dissolution,  liquidation  or winding up the
affairs of the Fund,  or  authorize,  create or issue  additional  shares of any
series of Preferred Shares or any other preferred shares, unless, in the case of
preferred shares on a parity with the Preferred Shares, the Fund obtains written
confirmation  from Moody's (if Moody's is then rating preferred  shares),  Fitch
(if Fitch is then rating preferred  shares) or any substitute  rating agency (if
any such  substitute  rating  agency is then rating  preferred  shares) that the
issuance of a class or series would not impair the rating then  assigned by such
rating  agency to the  Preferred  Shares and the Fund  continues  to comply with
Section  13 of the 1940  Act,  the  1940  Act  Preferred  Share  Asset  Coverage
requirements and the Preferred Shares Basic Maintenance Amount requirements,  in
which  case the vote or consent of the  holders of the  Preferred  Shares is not
required;

     (b)  amend,  alter or repeal the  provisions  of the  Charter  or  Articles
Supplementary by merger,  consolidation or otherwise,  so as to adversely affect
any preference,  right or power of the Preferred  Shares or holders of Preferred
Shares;  provided,  however,  that  (i)  none of the  actions  permitted  by the
exception  to (a) above  will be deemed to affect  such  preferences,  rights or
powers,  (ii) a  division  of  Preferred  Shares  will be deemed to affect  such
preferences,  rights or  powers  only if the  terms of such  division  adversely
affect the holders of Preferred Shares and (iii) the authorization, creation and
issuance of classes or series of shares ranking  junior to the Preferred  Shares
with respect to the payment of  dividends  and the  distribution  of assets upon
dissolution, liquidation or winding up of the affairs of the Fund will be deemed
to affect  such  preferences,  rights or powers only if Moody's or Fitch is then
rating the Preferred Shares and such issuance would, at the time thereof,  cause
the Fund not to satisfy  the 1940 Act  Preferred  Share  Asset  Coverage  or the
Preferred Shares Basic Maintenance Amount; or

     (c)  approve  any  reorganization  (as such  term is used in the 1940  Act)
adversely affecting the Preferred Shares.

So long as any shares of the  Preferred  Shares are  outstanding,  the Fund will
not,  without the affirmative vote or consent of the holders of at least 66 2/3%
of the Preferred Shares  outstanding at the time, in person or by proxy,  either
in  writing  or at a  meeting,  voting as a  separate  class,  file a  voluntary
application for relief under federal  bankruptcy law or any similar  application
under state law for so long as the Fund is solvent and does not foresee becoming
insolvent.

To the extent permitted under the 1940 Act, the Fund will not approve any of the
actions  set  forth in (a) or (b)  above  which  adversely  affects  the  rights
expressly  set forth in the  Charter or  Articles  Supplementary  of a holder of
preferred  shares  differently  than  those of a holder of any  other  preferred
shares  without  the  affirmative  vote or consent of the  holders of at least a
majority  of the  shares  of each  series  adversely  affected.  Unless a higher
percentage  is provided  for under the Charter or  Articles  Supplementary,  the
affirmative  vote of the  holders of a  majority  of the  outstanding  Preferred
Shares,  voting together as a single class, will be required to approve any plan
of reorganization  (including bankruptcy  proceedings)  adversely affecting such
shares or any action requiring a vote of security holders under Section 13(a) of
the 1940 Act.  However,  to the extent  permitted  by the  Charter  or  Articles
Supplementary,  no vote of  holders  of  common  shares,  either  separately  or
together  with holders of preferred  shares as a single  class,  is necessary to
take the actions contemplated by (a) and (b) above. The holders of common shares
will not be entitled to vote in respect of such matters  unless,  in the case of
the actions  contemplated by (b) above,  the action would  adversely  affect the
contract  rights of the  holders  of common  shares  expressly  set forth in the
Charter.



The foregoing voting provisions will not apply with respect to Preferred Shares
if, at or prior to the time when a vote is required, such shares have been (i)
redeemed or (ii) called for redemption and sufficient funds have been deposited
in the Fund to effect such redemption.


                                   THE AUCTION

GENERAL. The Articles  Supplementary provide that, except as otherwise described
in this  prospectus,  the  applicable  rate for the  Preferred  Shares  for each
dividend period after the initial  dividend period will be the rate that results
from an  auction  conducted  as set  forth in the  Articles  Supplementary,  the
material  terms of which  are  summarized  below.  In such an  auction,  persons
determine  to hold or offer to sell or,  based on  dividend  rates  bid by them,
offer to purchase  or sell  Preferred  Shares.  See the  Articles  Supplementary
included as Appendix C in the  Statement of  Additional  Information  for a more
complete description of the auction process.

AUCTION AGENCY  AGREEMENT.  The Fund will enter into an auction agency agreement
with the Auction Agent  (currently,  Deutsche Bank Trust Company Americas) which
provides,  among other  things,  that the Auction  Agent will follow the Auction
Procedures to determine the applicable rate for the Preferred  Shares so long as
the applicable rate for the Preferred Shares is to be based on the results of an
auction.

The Auction Agent will act as agent for the Fund in connection with auctions. In
the absence of bad faith or negligence  on its part,  the Auction Agent will not
be  liable  for any  action  taken,  suffered  or  omitted,  or for any error of
judgment  made, by it in the  performance of its duties under the auction agency
agreement  and will not be liable for any error of  judgment  made in good faith
unless the Auction Agent shall have been negligent in ascertaining the pertinent
facts.  Pursuant  to the  auction  agency  agreement,  the Fund is  required  to
indemnify the Auction Agent for certain losses and  liabilities  incurred by the
Auction Agent without negligence or bad faith on its part in connection with the
performance of its duties under such agreement.

The Auction Agent may terminate the auction agency  agreement upon notice to the
Fund no earlier than 60 days after delivery of said notice. If the Auction Agent
should  resign or its  appointment  is  terminated  during any  period  that any
Preferred  Shares are  outstanding,  the Fund will use its best efforts to enter
into an agreement with a successor  auction agent containing  substantially  the
same terms and conditions as the auction agency  agreement.  The Fund may remove
the Auction Agent provided that,  prior to removal,  the Fund has entered into a
replacement agreement with a successor auction agent.

BROKER-DEALER AGREEMENTS. Each auction requires the participation of one or more
Broker-Dealers.  The  Auction  Agent  will enter into  agreements  with  several
Broker-Dealers  selected by the Fund,  which  provide for the  participation  of
those Broker-Dealers in auctions for Preferred Shares.

The Auction Agent will pay to each Broker-Dealer after each auction,  from funds
provided by the Fund, a service charge:  (i) for any  twenty-eight-day  dividend
period,  at the annual  rate of 1/4 of 1% of the  liquidation  preference  (such
liquidation  preference being $25,000 per share) of the Preferred Shares held by
a Broker-Dealer's  customer upon settlement in an auction (equal to $[62.50] per
Preferred  Shares  per  year)  and  (ii) for any  special  dividend  period,  as
determined  by  mutual  consent  of the  Fund  and  any  such  Broker-Dealer  or
Broker-Dealers  and which shall be based upon a selling concession that would be
applicable to an underwriting of fixed or variable rate preferred  shares with a
similar fixed maturity or variable rate dividend  period,  respectively,  at the
commencement of the dividend  period with respect to such auction.  This service
charge  applies to  Preferred  Shares  held on  account  of the  Broker-Dealer's
clients as well as to Preferred Shares held for the Broker-Dealer's own account.
A  Broker-Dealer  may  share a portion  of any such fees with  non-participating
broker-dealers  that submit orders to the  Broker-Dealer for an auction that are
placed by that Broker-Dealer at such auction.

The Fund may request that the Auction Agent terminate one or more  Broker-Dealer
Agreements  at any time  upon  five  days'  notice,  provided  that at least one
Broker-Dealer Agreement is in effect after termination of the Agreement(s).

AUCTION  PROCEDURES.  The following is a brief summary of the material  terms of
the procedures to be used in conducting  auctions.  This summary is qualified by
reference to the Auction  Procedures  set forth in the  Articles  Supplementary,
which is attached as Appendix C to the Statement of Additional Information.  The
settlement  procedures  to be used with  respect  to  auctions  are set forth in
Appendix D to the Statement of Additional Information.

Prior to the submission  deadline on each auction date for the Preferred Shares,
each  customer  of a  Broker-Dealer  who  is  listed  on  the  records  of  that
Broker-Dealer  (or, if  applicable,  the Auction Agent) as a holder of Preferred
Shares, or a Broker-Dealer that holds Preferred Shares for its own account,  may
submit the  following  types of orders with respect to the  Preferred  Shares to
that Broker-Dealer:

     1.   Hold Order - indicating  its desire to hold shares  without  regard to
          the applicable rate for the next dividend period.



     2.   Bid - indicating  its desire to purchase or hold the indicated  number
          of shares at  $25,000  per share if the  applicable  rate for the next
          dividend  period is not less than the rate specified in the bid. A bid
          order by an  existing  holder will be deemed an  irrevocable  offer to
          sell shares at $25,000 per share if the  applicable  rate for the next
          dividend period is less than the rate or spread specified in the bid.

     3.   Sell Order - indicating its desire to sell shares at $25,000 per share
          without regard to the applicable rate for the next dividend period.

A beneficial  owner may submit  different  types of orders to its  Broker-Dealer
with respect to different  Preferred Shares then held by the beneficial owner. A
beneficial owner that submits its bid to its Broker-Dealer  having a rate higher
than the maximum  applicable  rate on the auction date will be treated as having
submitted a sell order to its  Broker-Dealer.  A beneficial  owner that fails to
submit an order to its Broker-Dealer will ordinarily be deemed to have submitted
a hold order to its  Broker-Dealer.  However,  if a  beneficial  owner  fails to
submit  an order to its  Broker-Dealer  for an  auction  relating  to a  special
dividend period of more than [91] days such  beneficial  owner will be deemed to
have submitted a sell order to its  Broker-Dealer.  A sell order  constitutes an
irrevocable  offer to sell the  Preferred  Shares  subject to the sell order.  A
beneficial  owner  that  offers to become  the  beneficial  owner of  additional
Preferred Shares is, for purposes of such offer, a potential holder as discussed
below.

A potential beneficial owner is either a customer of a Broker-Dealer that is not
a  beneficial  owner of Preferred  Shares but that wishes to purchase  shares or
that is a beneficial owner of shares that wishes to purchase  additional shares.
A potential  beneficial  owner may submit bids to its  Broker-Dealer in which it
offers to purchase shares at $25,000 per share if the applicable rate for shares
for the next dividend  period is not less than the specified rate in such bid. A
bid placed by a  potential  holder of shares  specifying  a rate higher than the
maximum rate for shares on the auction date will not be accepted.

The Broker-Dealers in turn will submit the orders of their respective  customers
who are beneficial  owners and potential holders to the Auction Agent. They will
designate  themselves  (unless  otherwise  permitted  by the  Fund) as  existing
holders of shares  subject to orders  submitted  or deemed  submitted to them by
beneficial owners. They will designate themselves as potential holders of shares
subject to orders  submitted to them by potential  beneficial  owners.  However,
neither the Fund nor the Auction Agent will be responsible for a Broker-Dealer's
failure to comply  with these  Auction  Procedures.  Any order  placed  with the
Auction  Agent by a  Broker-Dealer  as or on behalf of an  existing  holder or a
potential  holder  will be  treated  the  same  way as an  order  placed  with a
Broker-Dealer by a beneficial owner or potential holder.  Similarly, any failure
by a  Broker-Dealer  to submit to the Auction  Agent an order for any  Preferred
Shares held by it or customers  who are  beneficial  owners will be treated as a
beneficial owner's failure to submit to its Broker-Dealer an order in respect of
Preferred  Shares  held by it. A  Broker-Dealer  may also  submit  orders to the
Auction  Agent for its own account as an existing  holder or  potential  holder,
provided it is not an affiliate of the Fund. If a Broker-Dealer submits an order
for its own  account in any  auction,  it may have  knowledge  of orders  placed
through it in that auction and therefore  have an advantage  over other bidders,
but such  Broker-Dealer  would not have  knowledge of orders  submitted by other
Broker-Dealers  in that auction.  As a result of bidding by the Broker-Dealer in
an  auction,  the  auction  rate may be higher or lower than the rate that would
have prevailed had the Broker-Dealer not bid.

There are  sufficient  clearing  bids for  shares in an auction if the number of
shares  subject to bids  submitted or deemed  submitted to the Auction  Agent by
Broker-Dealers  for  potential  holders with rates or spreads  equal to or lower
than the maximum  applicable rate is at least equal to or exceeds the sum of the
number of shares subject to sell orders and the number of shares subject to bids
specifying rates or spreads higher than the maximum applicable rate submitted or
deemed submitted to the Auction Agent by Broker-Dealers for existing holders. If
there are  sufficient  clearing bids for shares,  the  applicable  rate for such
shares for the next  succeeding  dividend period thereof will be the lowest rate
specified  in the  submitted  bids which,  taking into account such rate and all
lower  rates  bid by  Broker-Dealers  as or on behalf of  existing  holders  and
potential holders, would result in existing holders and potential holders owning
the shares available for purchase in the auction.

If there are not sufficient  clearing bids for shares,  the applicable  rate for
the next  dividend  period  will be the maximum  applicable  rate on the auction
date.  If the  Fund has  declared  a  special  rate  period  and  there  are not
sufficient  clearing  bids,  the  election of a special  rate period will not be
effective and the  applicable  rate for the next rate period will be the same as
during the current dividend period.  If there are not sufficient  clearing bids,
beneficial  owners of Preferred Shares that have submitted or are deemed to have
submitted  sell orders may not be able to sell in the auction all shares subject
to such sell orders. If all of the applicable  outstanding  Preferred Shares are
the subject of submitted  hold orders,  then the dividend  period  following the
auction will automatically be the same length as the minimum dividend period and
the  applicable  rate for the next dividend  period will be 90% of the Reference
Rate.

A  Broker-Dealer  may bid in an auction in order to prevent what would otherwise
be (i) a failed auction,  (ii) an "all-hold" auction or (iii) an applicable rate
that the Broker-Dealer  believes,  in its sole discretion,  does not reflect the
market  rate  for  the  Preferred   Shares  at  the  time  of  the  auction.   A
Broker-Dealer,  may,  but is not  obligated  to,  advise  beneficial  owners  of
Preferred  Shares that the  applicable  rate that would  apply in an  "all-hold"
auction  may be lower than the rate that would  apply if owners  submit bids and
such advice,  if given,  may  facilitate  the  submission of bids by owners that
would avoid the occurrence of an "all-hold" auction.

The Auction  Procedures include a pro rata allocation of shares for purchase and
sale which may result in an existing holder continuing to hold or selling,  or a
potential holder purchasing, a number of Preferred Shares that is different than
the  number of shares  specified  in its order.  To the  extent  the  allocation
procedures have that result,  Broker-Dealers that have designated  themselves as
existing  holders or  potential  holders in respect of  customer  orders will be
required  to make  appropriate  pro  rata  allocations  among  their  respective
customers.



Settlement  of purchases  and sales will be made on the next business day (which
is also a dividend  payment date) after the auction date through the  Securities
Depository. Purchasers will make payment through their Agent Members in same-day
funds to the Securities  Depository  against  delivery to their respective Agent
Members.  The  Securities  Depository  will make payment to the  sellers'  Agent
Members in  accordance  with DTC's  normal  procedures,  which now  provide  for
payment against delivery by their Agent Members in same day funds.

If an auction date is not a business day because the NYSE is closed for business
due  to an  act  of  God,  natural  disaster,  act of  war,  civil  or  military
disturbance,  act of  terrorism,  sabotage,  riots or a loss or  malfunction  of
utilities  or  communications  services,  or the  Auction  Agent  is not able to
conduct  an auction  in  accordance  with the  Auction  Procedures  for any such
reason,  then the auction rate for the next dividend  period will be the auction
rate determined on the previous auction date.

The following is a simplified  example of how a typical  auction  works.  Assume
that the Fund has 1,000 outstanding  Preferred Shares and three current holders.
The three current  holders and three  potential  holders  submit orders  through
Broker-Dealers at the auction:



             Holder                                Goal                                     Action
                                                                    
Current Holder A...........       Owns 500 shares, wants to sell all      Bid order of 4.1% rate for all 500 shares
                                  500 shares if auction rate is less
                                  than 4.1%
Current Holder B...........       Owns 300 shares, wants to hold          Hold order - will take the auction rate
Current Holder C...........       Owns 200 shares, wants to sell all      Bid order of 3.9% rate for all 200 shares
                                  200 shares if auction rate is less
                                  than 3.9%
Potential Holder D.........       Wants to buy 200 shares if auction      Places order to buy at or above 4.0%
                                  rate is equal to or greater than 4.0%
Potential Holder E.........       Wants to buy 300 shares if auction      Places order to buy at or above 3.9%
                                  rate is equal to or greater than 3.9%
Potential Holder F.........       Wants to buy 200 shares if auction      Places order to buy at or above 4.1%
                                  rate is equal to or greater than 4.1%


The lowest dividend rate that will result in all 1,000  Preferred  Shares in the
above  example  continuing to be held is 4.0% (the offer by D).  Therefore,  the
dividend rate will be 4.0%.  Current  holders B and C will continue to own their
shares.  Current holder A will sell its shares because A's dividend rate bid was
higher  than the  dividend  rate.  Potential  holder D will buy 200  shares  and
potential  holder E will buy 300 shares because their bid rates were at or below
the dividend  rate.  Potential  holder F will not buy any shares because its bid
rate was above the dividend rate.

SUBMISSION OF ORDERS BY BROKER-DEALERS TO AUCTION AGENT. Prior to 1:30 p.m., New
York City time,  on each auction date, or such other time on the auction date as
may  be  specified  by the  Auction  Agent  (the  "submission  deadline"),  each
Broker-Dealer will submit to the Auction Agent in writing or through the Auction
Agent's auction  processing  system all orders obtained by it for the auction to
be  conducted  on  such  auction  date,  designating  itself  (unless  otherwise
permitted by the Fund) as the existing holder or potential  holder in respect of
the Preferred Shares subject to such orders. Any order submitted by a beneficial
owner  or  a  potential   beneficial  owner  to  its  Broker-Dealer,   or  by  a
Broker-Dealer  to the Auction Agent,  prior to the  submission  deadline for any
auction date, shall be irrevocable.

If the rate per annum  specified in any bid contains  more than three figures to
the right of the decimal point, the Auction Agent will round such rate per annum
up to the next  highest  one-thousandth  (.001) of  one-percent.  If one or more
orders of an existing  holder are submitted to the Auction Agent and such orders
cover in the aggregate more than the number of outstanding Preferred Shares held
by such existing  holder,  such orders will be considered valid in the following
order of priority:

          (i)  any hold order will be  considered  valid up to and including the
               number of  outstanding  Preferred  Shares  held by such  existing
               holder, provided that if more than one hold order is submitted by
               such existing  holder and the number of Preferred  Shares subject
               to such hold orders exceeds the number of  outstanding  Preferred
               Shares  held by such  existing  holder,  the number of  Preferred
               Shares  subject to each of such hold  orders  will be reduced pro
               rata so that such  hold  orders,  in the  aggregate,  will  cover
               exactly the number of outstanding  Preferred  Shares held by such
               existing holder;

          (ii) any bids will be  considered  valid,  in the  ascending  order of
               their  respective  rates  per  annum  if  more  than  one  bid is
               submitted by such existing holder, up to and including the excess
               of the  number  of  outstanding  Preferred  Shares  held  by such
               existing holder over the number of outstanding  Preferred  Shares
               subject to any hold order referred to in clause (i) above (and if
               more than one bid submitted by such existing holder specifies the
               same  rate per  annum  and  together  they  cover  more  than the
               remaining  number of shares that can be the subject of valid bids
               after  application  of  clause  (i)  above  and of the  foregoing
               portion of this clause (ii) to any bid or bids specifying a lower
               rate or rates per annum,  the number of shares subject to each of
               such bids will be  reduced  pro rata so that  such  bids,  in the
               aggregate,  cover exactly such  remaining  number of  outstanding
               shares); and the number of outstanding shares, if any, subject to
               bids not valid  under  this  clause  (ii) shall be treated as the
               subject of a bid by a potential holder; and



          (iii) any sell order will be considered  valid up to and including the
               excess of the number of outstanding Preferred Shares held by such
               existing  holder over the sum of the number of  Preferred  Shares
               subject to hold  orders  referred  to in clause (i) above and the
               number of Preferred Shares subject to valid bids by such existing
               holder  referred to in clause (ii) above;  provided that, if more
               than one sell order is submitted  by any existing  holder and the
               number of Preferred Shares subject to such sell orders is greater
               than such excess,  the number of Preferred Shares subject to each
               of such sell  orders  will be reduced  pro rata so that such sell
               orders,  in the  aggregate,  will  cover  exactly  the  number of
               Preferred Shares equal to such excess.

If more than one bid of any potential  holder is submitted in any auction,  each
bid  submitted in such  auction will be  considered a separate bid with the rate
per annum and number of Preferred Shares therein specified.

NOTIFICATION  OF RESULTS  AND  SETTLEMENT.  The  Auction  Agent will advise each
Broker-Dealer  who submitted a bid or sell order in an auction  whether such bid
or sell order was accepted or rejected in whole or in part and of the applicable
rate for the next dividend period for the related  Preferred Shares by telephone
or through the Auction Agent's auction  processing system at approximately  3:00
p.m.,  New York City  time,  on the  auction  date for such  auction.  Each such
Broker-Dealer  that  submitted an order for the account of a customer  then will
advise such  customer  whether  such bid or sell order was accepted or rejected,
will  confirm  purchases  and sales  with each  customer  purchasing  or selling
Preferred  Shares as a result  of the  auction  and will  advise  each  customer
purchasing or selling  Preferred Shares to give instructions to its Agent Member
of the Securities  Depository to pay the purchase price against delivery of such
shares or to deliver such shares against payment  therefor as appropriate.  If a
customer  selling  Preferred  Shares as a result of an auction fails to instruct
its Agent Member to deliver such shares,  the Broker-Dealer  that submitted such
customer's  bid or sell order will  instruct  such Agent  Member to deliver such
shares against payment therefor.  Each Broker-Dealer that submitted a hold order
in an auction on behalf of a customer  also will  advise  such  customer  of the
applicable  rate for the next  dividend  period for the  Preferred  Shares.  The
Auction Agent will record each  transfer of Preferred  Shares on the record book
of existing holders to be maintained by the Auction Agent.

In accordance with the Securities  Depository's  normal  procedures,  on the day
after each  auction  date,  the  transactions  described  above will be executed
through the  Securities  Depository,  and the accounts of the  respective  Agent
Members at the Securities  Depository  will be debited and credited as necessary
to effect the  purchases  and sales of Preferred  Shares as  determined  in such
auction.  Purchasers  will make payment  through their Agent Members in same-day
funds to the Securities Depository against delivery through their Agent Members;
the  Securities  Depository  will make  payment  in  accordance  with its normal
procedures,  which now provide for payment in same-day  funds. If the procedures
of the Securities  Depository applicable to Preferred Shares shall be changed to
provide for payment in next-day  funds,  then purchasers may be required to make
payment in next-day funds

If any existing holder selling  Preferred  Shares in an auction fails to deliver
such  Preferred  Shares,  the  Broker-Dealer  of any  person  that  was to  have
purchased  Preferred  Shares in such auction may deliver to such person a number
of whole Preferred  Shares that is less than the number of Preferred Shares that
otherwise  was to be  purchased  by such  person.  In such event,  the number of
Preferred  Shares to be so delivered  will be determined by such  Broker-Dealer.
Delivery  of such  lesser  number  of  Preferred  Shares  will  constitute  good
delivery.  Each Broker-Dealer  Agreement also will provide that neither the Fund
nor the Auction Agent will have  responsibility or liability with respect to the
failure of a beneficial  owner,  potential  beneficial owner or their respective
Agent  Members  to  deliver  Preferred  Shares  or to pay for  Preferred  Shares
purchased or sold pursuant to an auction or otherwise.

SECONDARY MARKET TRADING AND TRANSFERS OF PREFERRED SHARES.  The  Broker-Dealers
may maintain a secondary trading market in Preferred Shares outside of auctions,
but are not obligated to do so, and may  discontinue  such activity at any time.
There can be no assurance that any secondary  trading market in Preferred Shares
will provide owners with liquidity of investment.  The Preferred Shares will not
be registered on any stock exchange or on the Nasdaq National Market.  Investors
who  purchase  Preferred  Shares  in an  auction  (particularly  if the Fund has
declared a special  dividend  period) should note that because the dividend rate
on such shares will be fixed for the length of that dividend  period,  the value
of such shares may fluctuate in response to the changes in interest  rates,  and
may be more or less  than  their  original  cost if sold on the open  market  in
advance  of the  next  auction  thereof,  depending  on  market  conditions.  In
addition,  a Broker-Dealer may, in its own discretion,  decide to sell Preferred
Shares  in the  secondary  trading  market to  investors  at any time and at any
price,  including at prices  equivalent  to, below or above the par value of the
Preferred Shares.

A beneficial owner or an existing holder may sell, transfer or otherwise dispose
of Preferred Shares only in whole shares and only:

     o    pursuant  to a bid or sell  order  placed  with the  Auction  Agent in
          accordance with the Auction Procedures;

     o    to a Broker-Dealer; or

     o    to such  other  persons  as may be  permitted  by the Fund;  provided,
          however,  that a sale,  transfer  or other  disposition  of  Preferred
          Shares from a customer of a Broker-Dealer who is listed on the records
          of  that  Broker   Dealer  as  the  holder  of  such  shares  to  that
          Broker-Dealer or another customer of that  Broker-Dealer  shall not be
          deemed  to  be  a  sale,   transfer  or  other   disposition  if  such
          Broker-Dealer  remains the existing  holder of the shares;  and in the
          case  of  all  transfers   other  than   pursuant  to  auctions,   the
          Broker-Dealer (or other person, if permitted by the Fund) to whom such
          transfer is made will advise the Auction Agent of such transfer.



                           FEDERAL INCOME TAX MATTERS

The  following  is a summary  discussion  of  certain  U.S.  federal  income tax
consequences  that may be relevant to a shareholder  of  acquiring,  holding and
disposing of Preferred  Shares of the Fund. This discussion  addresses only U.S.
federal income tax consequences to U.S.  shareholders  that hold their shares as
capital  assets  and  does  not  address  all of the  U.S.  federal  income  tax
consequences  that may be relevant to particular  shareholders in light of their
individual  circumstances.  This  discussion  also  does  not  address  the  tax
consequences  to  shareholders  who are  subject  to special  rules,  including,
without  limitation,  banks and  financial  institutions,  insurance  companies,
dealers in securities or foreign currencies, foreign shareholders,  shareholders
who hold their shares as or in a hedge  against  currency  risk, a  constructive
sale,  or  a  conversion  transaction,  shareholders  who  are  subject  to  the
alternative  minimum tax, or  tax-exempt or  tax-deferred  plans,  accounts,  or
entities.  In addition,  the discussion  does not address any state,  local,  or
foreign  tax  consequences,  and it  does  not  address  any  U.S.  federal  tax
consequences  other than U.S.  federal income tax  consequences.  The discussion
reflects  applicable  tax  laws  of the  United  States  as of the  date of this
prospectus,  which tax laws may be changed or subject to new  interpretations by
the courts,  Treasury or the Internal Revenue Service (the "IRS")  retroactively
or  prospectively.  No attempt is made to present a detailed  explanation of all
U.S. federal income tax concerns  affecting the Fund and its  shareholders,  and
the discussion  set forth herein does not  constitute tax advice.  Investors are
urged  to  consult  their  own  tax  advisers  to  determine  the  specific  tax
consequences to them of investing in the Fund, including the applicable federal,
state,  local and  foreign tax  consequences  to them and the effect of possible
changes in tax laws.

The Fund intends to elect to be treated and to qualify each year as a "regulated
investment company" under Subchapter M of the Code and to comply with applicable
distribution  requirements so that it generally will not pay U.S. federal income
tax on income and capital gains distributed to shareholders. In order to qualify
as a regulated investment company,  which qualification the following discussion
assumes, the Fund must satisfy certain tests regarding the sources of its income
and the  diversification  of its assets.  If the Fund  qualifies  as a regulated
investment   company  and,  for  each  taxable  year,  it   distributes  to  its
shareholders  an  amount  equal  to or  exceeding  the  sum  of  (i)  90% of its
"investment  company  taxable income" as that term is defined in the Code (which
includes, among other things, dividends, taxable interest, and the excess of any
net short-term  capital gains over net long-term  capital losses,  as reduced by
certain deductible  expenses) without regard to the deduction for dividends paid
and (ii)  90% of the  excess  of its  gross  tax-exempt  interest  over  certain
disallowed  deductions,  the Fund  generally  will be relieved  of U.S.  federal
income tax on any income of the Fund,  including  "net capital gain" (the excess
of net long term capital gain over net short-term capital loss),  distributed to
shareholders.  However,  if the Fund meets such  distribution  requirements  but
chooses to retain  some  portion of  investment  company  taxable  income or net
capital gain, it generally will be subject to U.S. federal income tax at regular
corporate rates on the amount retained.  The Fund intends to distribute at least
annually all or substantially all of its investment  company taxable income, net
tax exempt  interest and net capital  gain. If for any taxable year the Fund did
not  qualify  as a  regulated  investment  company,  it  would be  treated  as a
corporation  subject to U.S.  federal  income tax thereby  subjecting any income
earned  by the Fund to tax at the  corporate  level  and,  when  such  income is
distributed, to a further tax at the shareholder level.

Under the Code,  the Fund will be subject to a  nondeductible  4% federal excise
tax on a portion  of its  undistributed  ordinary  income and  capital  gain net
income if it fails to meet  certain  distribution  requirements  with respect to
each calendar  year. The Fund intends to make  distributions  in a timely manner
and  accordingly  does not expect to be subject to the excise tax, but there can
be no assurance that the Fund's  distributions  will be sufficient to avoid this
tax entirely.

Based in part on the lack of any  present  intention  on the part of the Fund to
redeem or purchase  the  Preferred  Shares at any time in the  future,  the Fund
intends to take the position that under  present law the  Preferred  Shares will
constitute  stock of the Fund and  distributions  with respect to the  Preferred
Shares (other than  distributions in redemption of the Preferred Shares that are
treated as exchanges under Section 302(b) of the Code) will constitute dividends
to the  extent of the Fund's  current or  accumulated  earnings  and  profits as
calculated for U.S.  federal income tax purposes.  This view relies in part on a
published ruling of the IRS stating that certain preferred stock similar in many
material  respects to the Preferred Shares  represents  equity.  It is possible,
however,  that the IRS might take a contrary  position  asserting,  for example,
that the  Preferred  Shares  constitute  debt of the Fund. If this position were
upheld, the discussion of the treatment of distributions  below would not apply.
Instead  distributions  by  the  Fund  to  holders  of  Preferred  Shares  would
constitute interest, whether or not such distributions exceeded the earnings and
profits of the Fund,  would be included in the income of the recipient and would
be taxed as ordinary income.

In general, assuming the Fund has sufficient current or accumulated earnings and
profits,  dividends  from  investment  company  taxable  income  are  taxable as
ordinary  income and  dividends  from net capital  gain that are  designated  as
capital gain dividends are taxable as long-term  capital gains for U.S.  federal
income tax purposes  without  regard to the length of time the  shareholder  has
held  shares of the Fund.  Since not all of the Fund's  income is  derived  from
interest,  some portion of its dividends  from its  investment  company  taxable
income  may  constitute  "qualified  dividend  income"  for  federal  income tax
purposes and thus may be eligible for the favorable  federal  long-term  capital
gain tax rates on qualified dividend income.  Capital gain dividends distributed
by the Fund to individual  shareholders  generally  will qualify for the maximum
15% U.S. federal income tax rate on long-term capital gains.  Under current law,
the maximum 15% U.S.  federal  income tax rate on long-term  capital  gains will
cease to apply to taxable years beginning after December 31, 2008.



If a portion of the Fund's income consists of qualifying  dividends paid by U.S.
corporations  (other than REITs), a portion of the dividends paid by the Fund to
corporate  stockholders,  if properly  designated,  may qualify for the dividend
received  deduction or "DRD".  In addition,  for taxable  years  beginning on or
before December 31, 2008,  distributions of investment  income designated by the
Fund as derived  from  qualified  dividend  income will be taxed in the hands of
individuals at the rates applicable to long-term capital gain,  provided holding
period  and  other  requirements  are met by both the Fund and the  stockholder.
Specifically,  a dividend paid by the Fund to a stockholder  will not be treated
as qualified  dividend income of the stockholder (1) if the dividend is received
with respect to any share held for fewer than 61 days during the 121-day  period
beginning  on the date  which is 60 days  before  the date on which  such  share
becomes  ex-dividend  with respect to such dividend,  (2) to the extent that the
recipient is under an obligation (whether pursuant to a short sale or otherwise)
to make related payments with respect to positions in  substantially  similar or
related  property or (3) if the recipient elects to have the dividend treated as
investment  income for purposes of the limitation on deductibility of investment
interest. Qualified dividend income is, in general, dividend income from taxable
domestic  corporations  and  certain  "qualified  foreign  corporations"  (e.g.,
generally,  foreign  corporations  incorporated  in a  possession  of the United
States or in certain  countries with a qualifying  comprehensive tax treaty with
the United States, or the stock of which and with respect to which such dividend
is paid is readily  tradable on an established  securities  market in the United
States),  but does not include a foreign  corporation which for the taxable year
of the  corporation  in which the dividend was paid,  or the  preceding  taxable
year, is a "passive foreign  investment  company," as defined in the Code. There
can be no assurance of what portion, if any, of the Fund's distributions will be
entitled to the lower tax rates that apply to qualified dividend income.

Although  dividends  generally  will be treated as  distributed  when paid,  any
dividend  declared  by the  Fund as of a record  date in  October,  November  or
December and paid during the following  January will be treated for U.S. federal
income tax purposes as received by  shareholders  on December 31 of the calendar
year in which it is declared.

Distributions  by the Fund in  excess  of the  Fund's  current  and  accumulated
earnings  and  profits  will be  treated as a return of capital to the extent of
(and in  reduction  of) the  shareholder's  tax basis in its shares and any such
amount in excess of that  basis will be treated as gain from the sale of shares,
as discussed below. The U.S. federal income tax status of all distributions will
be reported to shareholders annually.

If the Fund  retains  any net  capital  gain for a  taxable  year,  the Fund may
designate  the retained  amount as  undistributed  capital  gains in a notice to
shareholders  who, if subject to U.S.  federal  income tax on long-term  capital
gains,  (i) will be  required to include in income for U.S.  federal  income tax
purposes,  as  long-term  capital  gain,  their  proportionate  shares  of  such
undistributed  amount,  and (ii) will be entitled to credit their  proportionate
shares of the tax paid by the Fund on the  undistributed  amount  against  their
U.S. federal income tax liabilities,  if any, and to claim refunds to the extent
the credit exceeds such liabilities.

The IRS has taken the position that if a regulated investment company has two or
more classes of shares,  it must designate  distributions  made to each class in
any year as  consisting  of no more than  such  class's  proportionate  share of
particular  types of income,  including  ordinary  income and capital  gains.  A
class's  proportionate  share  of a  particular  type of  income  is  determined
according to the percentage of total dividends paid by the regulated  investment
company to such class. Consequently,  if both common shares and Preferred Shares
are outstanding, the Fund intends to designate distributions made to the classes
of particular types of income in accordance with each such class's proportionate
share of such income.  The Fund will designate  dividends  qualifying as capital
gain  dividends  and other  taxable  dividends in a manner that  allocates  such
income  between the holders of common shares and Preferred  Shares in proportion
to the total  dividends paid to each class during the taxable year, or otherwise
as required by applicable law.

Sales and other  dispositions of the Fund's shares  generally are taxable events
for shareholders that are subject to tax.  Shareholders should consult their own
tax advisers  with  reference  to their  individual  circumstances  to determine
whether any particular transaction in the Fund's shares is properly treated as a
sale for tax  purposes  (including a redemption  of  Preferred  Shares),  as the
following  discussion  assumes,  and the tax  treatment  of any  gains or losses
recognized in such transactions. In general, if shares of the Fund are sold, the
shareholder  will  recognize  gain or loss equal to the  difference  between the
amount realized on the sale and the  shareholder's  adjusted basis in the shares
sold.  Such gain or loss  generally will be treated as long-term gain or loss if
the  shares  were held for more than one year and  otherwise  generally  will be
treated as short-term  gain or loss. Any loss  recognized by a shareholder  upon
the sale or other  disposition of shares with a tax holding period of six months
or less will be treated as a long-term capital loss to the extent of any amounts
treated as distributions of long-term capital gains with respect to such shares.
Losses on sales or other  dispositions  of shares may be disallowed  under "wash
sale"  rules  in the  event  substantially  identical  shares  of the  Fund  are
purchased  (including  those made pursuant to reinvestment  of dividends  and/or
capital gains distributions) within a period of 61 days beginning 30 days before
and ending 30 days after a sale or other disposition of shares.

If, in connection  with the selection of a long-term  dividend  period,  (i) the
Fund  provides  that a Premium Call Period will follow a Non-Call  Period,  (ii)
based on all the facts and  circumstances  at the time of the designation of the
long-term  dividend  period  the  Fund is more  likely  than not to  redeem  the
Preferred  Shares  during the Premium Call  Period,  and (iii) the premium to be
paid upon redemption during the Premium Call Period exceeds a reasonable penalty
for early redemption, it is possible that the holder of Preferred Shares will be
required  to accrue  such  premium  as a  dividend  (to the extent of the Fund's
earnings and profits) over the term of the Non-Call Period.



The Fund is required in certain  circumstances  to backup withhold on reportable
payments,  including  dividends,  capital gains  distributions,  and proceeds of
sales or other  dispositions of the Fund's shares paid to certain holders of the
Fund's  shares who do not furnish the Fund with their  correct  Social  Security
number  or  other  taxpayer   identification   number  and  make  certain  other
certifications,  or who are  otherwise  subject  to backup  withholding.  Backup
withholding is not an additional tax. Any amounts withheld from payments made to
a  shareholder  may be refunded  or credited  against  such  shareholder's  U.S.
federal income tax liability,  if any, provided that the required information is
furnished to the IRS.

The foregoing is a general and abbreviated summary of the provisions of the Code
and the Treasury  regulations  currently in effect as they generally  affect the
taxation of the Fund and its shareholders.  As noted above, these provisions are
subject to change by legislative,  judicial or  administrative  action,  and any
such change may be retroactive.  A further discussion of the U.S. federal income
tax rules  applicable  to the Fund can be found in the  Statement of  Additional
Information   which  is   incorporated   by  reference  into  this   prospectus.
Shareholders  are  urged  to  consult  their  tax  advisers  regarding  specific
questions as to U.S. federal, foreign, state, and local income or other taxes.

As required by U.S. Treasury Regulations governing tax practice,  you are hereby
advised that any written tax advice contained herein was not written or intended
to be used (and  cannot be used) by any  taxpayer  for the  purpose of  avoiding
penalties that may be imposed under the Code.

The  advice  was  prepared  to  support  the   promotion  or  marketing  of  the
transactions or matters addressed by the written advice.

Any person  reviewing this discussion  should seek advice based on such person's
particular circumstances from an independent tax adviser.


                        DETERMINATION OF NET ASSET VALUE

The net asset value of common stock of the Fund is computed based upon the value
of the Fund's portfolio  securities and other assets. Net asset value per common
share of the Fund is determined as of the close of the regular  trading  session
on the  NYSE no less  frequently  than the last  business  day of each  week and
month, provided,  however, that if any such day is a holiday or determination of
net asset value on such day is impracticable,  the net asset value is calculated
on such earlier or later day as determined by the Advisers.  The Fund calculates
net  asset  value  per  common  share  of the  Fund by  subtracting  the  Fund's
liabilities (including accrued expenses, dividends payable and any borrowings of
the Fund) and the liquidation value of any outstanding  preferred stock from the
Fund's  total  assets (the value of the  securities  the Fund holds plus cash or
other assets,  including interest accrued but not yet received) and dividing the
result by the total number of common shares of the Fund outstanding.

The Fund values its  holdings  by using  market  quotations  provided by pricing
services,  prices  provided  by market  makers  or  estimates  of market  values
obtained from yield data  relating to  instruments  or  securities  with similar
characteristics  in  accordance  with  procedures   established  by  the  Board.
Short-term  securities  having  a  maturity  of 60 days or less  are  valued  at
amortized cost, which approximates  market value. Any securities or other assets
for which  current  market  quotations  are not readily  available are valued at
their fair value as determined in good faith under procedures established by and
under the general supervision and responsibility of the Board.


                  CAPITALIZATION OF THE FUND AND OTHER MATTERS

REPURCHASE OF COMMON SHARES.  Shares of closed-end  investment  companies  often
trade at a discount to their net asset values, and the Fund's common shares have
in the past and may in the future  trade at a discount to their net asset value.
The market price of the Fund's  common  shares is  determined by such factors as
relative  demand for and supply of such common shares in the market,  the Fund's
net asset value, general market and economic conditions and other factors beyond
the control of the Fund. Although the Fund's common shareholders do not have the
right to  require  the Fund to redeem  their  common  shares,  the Fund may take
action,  from time to time,  to  repurchase  common shares in the open market or
make tender offers for its common shares at their net asset value. This may, but
will not  necessarily,  have the effect of reducing any market discount from net
asset value.

The  acquisition  of common shares by the Fund will decrease the total assets of
the Fund and, therefore,  have the effect of increasing the Fund's expense ratio
and may  adversely  affect the  ability of the Fund to  achieve  its  investment
objectives.  Furthermore,  the  acquisition  of  common  shares  by the Fund may
require the Fund to redeem the  Preferred  Shares in order to  maintain  certain
asset  coverage  requirements.  To the  extent  the Fund  may need to  liquidate
investments to fund  repurchase of common  shares,  this may result in portfolio
turnover  which will result in additional  expenses being borne by the Fund. The
Board  currently  considers the following  factors to be relevant to a potential
decision to repurchase  common shares:  the extent and duration of the discount,
the liquidity of the Fund's  portfolio,  the impact of any action on the Fund or
its  stockholders  and market  considerations.  Any share  repurchases or tender
offers will be made in accordance with the  requirements of the Exchange Act and
the 1940 Act. See "U.S. Federal Taxation" for a description of the potential tax
consequences of a repurchase of common shares. See "Repurchase of Shares" in the
Statement of Additional Information.



CAPITALIZATION.  The Charter  authorizes the issuance of  250,000,000  shares of
common stock, par value $0.01 per share. In 2002, Fund shareholders  approved an
amendment to the Fund's charter which authorizes the Board,  without shareholder
approval, to increase the Fund's authorized capital. Pursuant to such amendment,
and in connection with a rights offering in 2002, the Board resolved to increase
the authorized capital of the Fund to its current level.

RIGHTS WITH REGARD TO DIVIDENDS, VOTING AND LIQUIDATION.  When issued, shares of
common  stock are fully  paid and  non-assessable.  The  Fund's  shares  have no
preemptive,  conversion,  exchange or  redemption  rights.  Each share of common
stock has one vote and shares equally in dividends and distributions when and if
declared by the Fund and in the Fund's net assets upon  liquidation.  All voting
rights for the  election of  directors  are  non-cumulative.  Consequently,  the
holders  of more than 50% of the shares  can elect  100% of the  directors  then
nominated  for election if they choose to do so (subject to the right of holders
of preferred  shares to elect  directors) and, in such event, the holders of the
remaining common shares will not be able to elect any directors.

COMMON STOCK. Although the Fund conducted a rights offerings in 2002, and may do
so again in the  future,  the Fund has no  present  intention  of  offering  any
additional  shares of capital  stock other than the Preferred  Shares  described
herein.  Any  additional  offerings of shares of capital  stock,  if made,  will
require approval by the Board. Any additional  offering of common shares will be
subject to the requirements of the 1940 Act that common shares may not be issued
at a price below the then  current net asset value  (exclusive  of  underwriting
discounts and  commissions)  except in  connection  with an offering to existing
stockholders   or  with  the  consent  of  a  majority  of  the  Fund's   common
shareholders.

The Fund's  common stock traded on the NYSE from January 1974 to April 29, 2002,
under the symbol "UIF". From April 30, 2002 to the present, the common stock has
traded  on the NYSE  under  the  symbol  "BIF".  On July __,  2005,  there  were
11,327,784  shares of common stock issued and  outstanding,  the net asset value
per common  share was $____ and the closing  price per common  share on the NYSE
was $_____.

PREFERRED  STOCK.  Under the Charter,  the Board is  authorized  to classify and
reclassify any unissued shares of the Fund's common stock as part of an issuance
of  preferred  stock.  The  Board  is  also  authorized  to  set or  change  the
preferences,   conversion  or  other  rights,   voting   powers,   restrictions,
limitations as to dividends, qualifications or terms or conditions of redemption
of such  shares of stock.  Under the 1940  Act,  the Fund is  permitted  to have
outstanding more than one series of preferred shares so long as no single series
has a priority over another series as to the  distribution of assets of the Fund
or the payment of dividends.  Holders of common shares and outstanding preferred
shares of the Fund have no  preemptive  right to purchase any  preferred  shares
that might be  issued.  On July __,  2005,  the Board  classified  10,000 of its
unissued shares of common stock as preferred stock.

ANTI-TAKEOVER   PROVISIONS  OF  THE  CHARTER  AND  BY-LAWS.   At  a  meeting  of
shareholders held in May 2004,  shareholders  approved a comprehensive  range of
corporate   governance   proposals  which  abolished  or  changed  a  number  of
anti-takeover  provisions previously adopted by the Fund. These included,  among
others,  proposals  to (i)  declassify  the  Board,  (ii) elect  directors  by a
plurality of votes cast, (iii) permit  shareholders to effect By-law amendments,
(iv) set the number of directors at exactly five, and (v) prohibit the Fund from
opting  into the  Maryland  Unsolicited  Takeovers  Act.  Nonetheless,  the Fund
presently  has  provisions  in its Charter and By-Laws  which may still have the
effect of limiting the ability of other  entities or persons to acquire  control
of the Fund,  to cause it to engage in  certain  transactions  or to modify  its
structure (commonly referred to as "anti-takeover" provisions):

          (1)  The Charter  requires the affirmative vote of at least two-thirds
               of the votes  entitled  to be cast by holders of common  stock to
               approve,  adopt or authorize  (a) certain  business  combinations
               (e.g.,  merger,  consolidation  or liquidation,  or sale,  lease,
               exchange,  mortgage, pledge, transfer or other disposition of the
               Fund's assets, etc.); (b) voluntary liquidation or dissolution of
               the  Fund;  (c)  shareholder   proposals   regarding   investment
               decisions;  (d)  conversion  from  a  closed-end  to an  open-end
               investment  company;  or (e) a self-tender for, or acquisition by
               the Fund of,  more than 25% of the Fund's  outstanding  shares of
               stock, during any twelve-month period.

          (2)  The Fund's By-laws  contain  provisions the effect of which is to
               prevent matters,  including nominations of Directors,  from being
               considered  at  shareholders'  meetings  where  the  Fund has not
               received sufficient prior notice of the matters.

The percentage of votes required under these provisions,  which are greater than
the  minimum  requirements  under  Maryland  law or the 1940  Act,  make it more
difficult to effect a change in the Fund's business or management and could have
the effect of  depriving  holders  of common  shares of an  opportunity  to sell
shares at a premium over prevailing  market prices by discouraging a third party
from  seeking  to  obtain  control  of the  Fund in a tender  offer  or  similar
transaction.  The Board, however, has considered these anti-takeover  provisions
and believes that they are in the best interests of shareholders.

INDEPENDENT  REGISTERED  PUBLIC  ACCOUNTING  FIRM.  The  data in the  "Financial
Highlights"  section of this prospectus are based upon financial  statements for
the 6 months  ending May 31,  2005,  that have not been  audited  and  financial
statements  for the year ending  November  30,  2004,  that have been audited by
________,  the Fund's independent  registered public accounting firm, located at
________________,  as indicated in their reports with respect  thereto,  and are
incorporated  by reference  herein in reliance on their  reports  given on their
authority as experts in auditing and accounting.



VALIDITY OF SHARES.  Certain  legal  matters in  connection  with the  Preferred
Shares will be passed on by Paul, Hastings,  Janofsky & Walker LLP, Los Angeles,
California,  counsel to the Fund in connection  with the  Offering,  and Venable
LLP.  Certain  matters  have been passed upon for the  Underwriters  by Clifford
Chance  US LLP,  New  York,  New  York.  Clifford  Chance US LLP may rely on the
opinion of Venable LLP as to certain matters of Maryland law.

REPORTS TO SHAREHOLDERS. The Fund sends unaudited semiannual reports and audited
annual reports, including lists of investments held, to shareholders.

AVAILABLE INFORMATION.  The Fund is subject to the informational requirements of
the  Exchange  Act and the 1940 Act and in  accordance  therewith is required to
file reports,  proxy  statements and other  information  with the Securities and
Exchange  Commission.  Any such reports,  proxy statements and other information
can  be  inspected  and  copied  at  the  public  reference  facilities  of  the
Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, the
Commission's New York Regional Office at 233 Broadway,  New York, New York 10279
and its Chicago Regional Office at Suite 1400,  Northwestern  Atrium Center, 500
West Madison Street,  Chicago,  Illinois 60661.  Reports,  proxy  statements and
other  information  concerning  the Fund can also be inspected at the offices of
the NYSE, 20 Broad Street, New York, New York 10005.

Additional  information  regarding the Fund and the Offering is contained in the
Registration Statement on Form N-2, including amendments, exhibits and schedules
thereto,  relating to the Preferred Shares filed by the Fund with the Securities
and Exchange Commission. This prospectus does not contain all of the information
set forth in the Registration Statement, including any amendments,  exhibits and
schedules  thereto.  For further  information  with  respect to the Fund and the
shares  offered  hereby,  reference  is  made  to  the  Registration  Statement.
Statements  contained in this  Prospectus  as to the contents of any contract or
other  document  referred to are not  necessarily  complete and in each instance
reference  is made to the copy of such  contract or other  document  filed as an
exhibit to the  Registration  Statement,  each such statement being qualified in
all respects by such reference.

A copy of the  Registration  Statement  may be inspected  without  charge at the
Securities and Exchange Commission's  principal office in Washington,  D.C., and
copies of all or any part thereof may be obtained from the  Commission  upon the
payment of certain fees prescribed by the Commission. The Commission maintains a
website  (http://www.sec.gov)  that contains the Registration  Statement,  other
documents  incorporated by reference,  and other  information the Fund has filed
electronically with the Commission, including proxy statements and reports filed
under the Exchange Act.


                                  UNDERWRITING

Subject to the terms and conditions stated in the purchase  agreement dated July
__, 2005 (the "Purchase  Agreement"),  each  Underwriter  named below, for which
[Lead  Underwriter]  is  acting  as  representative,  has  severally  agreed  to
purchase,  and the Fund has  agreed to sell to such  Underwriter,  the number of
Preferred Shares set forth opposite the name of such Underwriter.

        Underwriter                             Number of Preferred
                                                Shares
        [Lead Underwriter - Full Name]


        Total

The Purchase  Agreement  provides that the  obligations of the  Underwriters  to
purchase  the shares  included in this  offering  are subject to the approval of
certain  legal  matters by counsel and to certain  other  conditions,  including
without  limitation  the  receipt  by  the  Underwriters  of  customary  closing
certificates,  opinions and other documents,  and the receipt by the Fund of Aaa
and AAA ratings on the Preferred Shares by Moody's and Fitch,  respectively,  as
of the time of the offering.  The Underwriters are obligated to purchase all the
Preferred Shares if they purchase any of the Preferred  Shares.  In the Purchase
Agreement,  the Fund and  Advisers  have agreed to  indemnify  the  Underwriters
against certain liabilities,  including liabilities arising under the Securities
Act, or to contribute  payments the Underwriters may be required to make for any
of those liabilities

The  Underwriters  propose  to  initially  offer  some of the  Preferred  Shares
directly to the public at the public  offering price set forth on the cover page
of this  prospectus and some of the Preferred  Shares to certain  dealers at the
public offering price less a concession not in excess of $_______ per share. The
sales load the Fund will pay of $[250]  per share is equal to 1% of the  initial
offering price of the Preferred Shares. After the Offering, the Underwriters may
change the public offering price and the concession.  Investors must pay for any
Preferred Shares purchased in the Offering on or before July ___, 2005.



The Fund  anticipates that the Underwriters may from time to time act as brokers
or dealers in executing the Fund's portfolio transactions after they have ceased
to be Underwriters. The Underwriters are active underwriters of, and dealers in,
securities  and  act as  market  makers  in a  number  of such  securities,  and
therefore can be expected to engage in portfolio  transactions with, and perform
services for, the Fund.

The  Underwriters  have  advised the Fund that certain of the  Underwriters  and
various other  broker-dealers  and other firms that  participate  in the auction
rate  securities  market  received  letters from the staff of the Securities and
Exchange  Commission in the spring of 2004.  The letters  requested that each of
those  firms  voluntarily  conduct an  investigation  regarding  its  respective
practices and  procedures in that market.  Pursuant to these  requests,  each of
those Underwriters  conducted its own voluntary review and reported its findings
to the Securities and Exchange  Commission staff. At the staff's request,  those
Underwriters  are engaging in discussions with the staff concerning its inquiry.
Neither those  Underwriters nor the Fund can predict the ultimate outcome of the
inquiry or how that outcome will affect the market for the  Preferred  Shares or
the auctions.

The Fund anticipates  that the Underwriters or their respective  affiliates may,
from time to time,  act in auctions as  Broker-Dealers  and receive  fees as set
forth under "The Auction" and in the Statement of Additional Information.

The principal business address of [Lead Underwriter] is __________________.

In connection  with this offering,  certain of the  Underwriters  or dealers may
distribute prospectuses electronically.

The  settlement  date  for  the  purchase  of  the  Preferred   Shares  will  be
____________,  2005,  as  agreed  upon by the  Underwriters,  the  Fund  and the
Advisers  pursuant to Rule 15c6-1 under the Securities  Exchange Act of 1934, as
amended (the "Exchange Act").


          TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION

THE FUND

USE OF PROCEEDS

INVESTMENT OBJECTIVE AND POLICIES

INVESTMENT POLICIES AND RESTRICTIONS

INVESTMENT POLICIES AND TECHNIQUES

MANAGEMENT OF THE FUND

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OWNERSHIP OF THE FUND BY

DIRECTORS DIRECTOR AND OFFICER COMPENSATION COMMITTEES OF THE BOARD OF DIRECTORS

INVESTMENT ADVISERS AND OTHER SERVICE PROVIDERS COMPENSATION TO THE ADVISERS AND
ADMINISTRATORS

FACTORS  CONSIDERED BY THE  INDEPENDENT  DIRECTORS IN APPROVING  THE  INVESTMENT
ADVISORY AGREEMENTS

DURATION AND TERMINATION

POTENTIAL CONFLICTS OF INTEREST

PROXY VOTING

CODE OF ETHICS

PORTFOLIO TRANSACTIONS, BROKERAGE ALLOCATION AND OTHER PRACTICES

ADDITIONAL INFORMATION CONCERNING THE AUCTIONS FOR PREFERRED SHARES

RATING AGENCY GUIDELINES

REPURCHASE OF SHARES

FEDERAL INCOME TAX MATTERS.

PERFORMANCE-RELATED, COMPARATIVE AND OTHER INFORMATION

FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

Appendix A - Description of Ratings

Appendix B - Proxy Voting Policies and Procedures

Appendix C - Articles  Supplementary  Creating  and Fixing the Rights of Auction
Preferred Stock

Appendix D - Settlement Procedures





                                   $25,000,000
                       BOULDER GROWTH & INCOME FUND, INC.
                         Auction Market Preferred Shares

                                  1,000 Shares

                    Liquidation Preference $25,000 Per Share

                                  July __, 2005



                    SUBJECT TO COMPLETION, DATED JULY 8, 2005


                       BOULDER GROWTH & INCOME FUND, INC.

                       STATEMENT OF ADDITIONAL INFORMATION

Boulder Growth & Income Fund, Inc. (the "Fund") is a closed-end, non-diversified
management investment company. This Statement of Additional Information does not
constitute a prospectus,  but should be read in conjunction  with the prospectus
relating  hereto  dated July __,  2005 (the  "Prospectus").  This  Statement  of
Additional  Information  does not include  all  information  that a  prospective
investor should consider before  participating  in the auction market  preferred
shares  ("Preferred   Shares")  offering  (the  "Offering")   described  in  the
Prospectus  or  otherwise  purchasing  the Fund's  common  stock.  A copy of the
Prospectus may be obtained without charge by calling the Fund's co-administrator
(Fund  Administrative  Services,  LLC) at (800)-________.  You may also obtain a
copy of the  Prospectus  on the  Securities  and Exchange  Commission's  website
(http://www.sec.gov).  Capitalized  terms used but not defined in this Statement
of Additional Information have the meanings given to them in the Prospectus.

THE INFORMATION IN THIS STATEMENT OF ADDITIONAL  INFORMATION IS NOT COMPLETE AND
MAY BE  CHANGED.  WE MAY  NOT  SELL  THESE  SECURITIES  UNTIL  THE  REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE  COMMISSION IS EFFECTIVE.  THIS
STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL THESE SECURITIES AND
IS NOT SOLICITING AN OFFER TO BUY THESE  SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.

This Statement of Additional Information is dated July 8, 2005.




                                TABLE OF CONTENTS
                                                                                                                      
THE FUND                                                                                                                 2

USE OF PROCEEDS                                                                                                          2

INVESTMENT OBJECTIVE AND POLICIES                                                                                        2

INVESTMENT POLICIES AND RESTRICTIONS                                                                                     2

INVESTMENT POLICIES AND TECHNIQUES                                                                                       3

MANAGEMENT OF THE FUND                                                                                                   9

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS                                                                          9

OWNERSHIP OF THE FUND BY DIRECTORS                                                                                       9

DIRECTOR AND OFFICER COMPENSATION                                                                                        10

COMMITTEES OF THE BOARD OF DIRECTORS                                                                                     11

INVESTMENT ADVISERS AND OTHER SERVICE PROVIDERS                                                                          12

COMPENSATION TO THE ADVISERS AND ADMINISTRATORS                                                                          13

FACTORS CONSIDERED BY THE INDEPENDENT DIRECTORS IN APPROVING THE INVESTMENT ADVISORY AGREEMENTS                          14

DURATION AND TERMINATION                                                                                                 16

POTENTIAL CONFLICTS OF INTEREST                                                                                          16

PROXY VOTING                                                                                                             17

CODE OF ETHICS                                                                                                           17

PORTFOLIO TRANSACTIONS, BROKERAGE ALLOCATION AND OTHER PRACTICES                                                         17

ADDITIONAL INFORMATION CONCERNING THE AUCTIONS FOR PREFERRED SHARES                                                      18

RATING AGENCY GUIDELINES                                                                                                 19

REPURCHASE OF SHARES                                                                                                     20

FEDERAL INCOME TAX MATTERS                                                                                               21

PERFORMANCE-RELATED, COMPARATIVE AND OTHER INFORMATION                                                                   25

FINANCIAL STATEMENTS                                                                                                     26

ADDITIONAL INFORMATION                                                                                                   26

Appendix A - Description of Ratings
Appendix B - Proxy Voting Policies and Procedures
Appendix C - Articles Supplementary Creating and Fixing the Rights of Auction Preferred Stock
Appendix D - Settlement Procedures




                                    THE FUND

From its  inception in 1972 until 2002,  the Fund was called USLIFE Income Fund,
Inc. (the  "Predecessor  Fund").  The Predecessor Fund was managed to provide "a
high level of current  income," was virtually  100% invested in corporate  bonds
and was  classified as a diversified  fund under the  Investment  Company Act of
1940,  as amended (the "1940  Act").  At a special  shareholder  meeting held in
April 2002, shareholders approved a change in the Fund's name, in the investment
objective to "total return" and in the Fund's classification from diversified to
non-diversified,  and  eliminated or changed  certain of the Fund's  fundamental
investment   policies.   See  "Fundamental   Policies"  below.  After  the  Fund
implemented these changes,  the Fund's advisers liquidated a substantial portion
of the Fund's bond  portfolio.  As of June 30, 2005,  none of the Fund's  assets
were invested in bonds.


                                 USE OF PROCEEDS

The  majority of the net  proceeds of the  Offering  will be used to pay off $20
million  drawn from a line of credit the Fund  currently  uses as leverage.  The
balance  of the  proceeds  will  be  invested  in  accordance  with  the  Fund's
investment  objective and policies as soon as practicable.  The Fund anticipates
that it will be able to invest  substantially  all of such net  proceeds  within
approximately  three  months after  completion  of this  offering.  Pending such
investment,  the net proceeds may be invested in U.S.  government  securities or
high grade, short-term money market instruments. If necessary, the Fund may also
purchase, as temporary investments,  securities of other open-end and closed-end
investment companies that invest in equity and fixed-income securities.


                        INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment  objective is total return. The Fund seeks to produce both
income and long-term capital  appreciation by investing in a portfolio of equity
and debt  securities.  The Fund invests  primarily in common  stocks,  including
dividend  paying  common  stocks such as those  issued by  utilities,  REITs and
closed-end  RICs. The Fund also invests in fixed income  securities such as U.S.
government securities, preferred stocks and bonds. The Fund invests primarily in
securities  of U.S.-based  companies  and to a lesser  extent in foreign  equity
securities  and  sovereign  debt,  in each  case  denominated  in the  sovereign
currency.  The Fund has no  restrictions  on its  ability  to invest in  foreign
securities.  The Fund is  concentrated  in REITs which means it must invest more
than 25% of its total assets in REITs and companies in the real estate industry.
No assurance can be given that the Fund will achieve its investment objective.

The Fund is a "non-diversified"  investment company, as defined in the 1940 Act,
which means that it is permitted  to invest its assets in a more limited  number
of issuers than "diversified"  investment  companies.  A diversified company may
not, with respect to 75% of its total  assets,  invest more than 5% of its total
assets in the  securities of any one issuer and may not own more than 10% of the
outstanding  voting  securities  of any one  issuer.  However,  pursuant  to the
requirements  of  Subchapter M of the Internal  Revenue Code of 1986, as amended
(the  "Code"),  (A) not more than 25% of the Fund's total assets may be invested
in securities of any one issuer (other than U.S. government securities and RICs)
or of any two or more issuers  controlled  by the Fund which may be deemed to be
engaged  in the same,  similar  or related  trades or  businesses,  and (B) with
respect  to 50% of the total  value of the Fund's  portfolio,  (i) the Fund must
limit to 5% the  portion of its assets  invested in the  securities  of a single
issuer (other than U.S.  government  securities and RICs), and (ii) the Fund may
not own more than 10% of the  outstanding  voting  securities  of any one issuer
(other  than  U.S.  government   securities  and  RICs).  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 "non-diversified" fund. As a
result,  the Fund may be  subject to a greater  risk of loss than a  diversified
fund or a fund that has diversified its investments more broadly.  Taking larger
positions  is also likely to  increase  the  volatility  of the Fund's net asset
value, reflecting fluctuations in the value of large Fund holdings.

Under normal market  conditions,  the Fund intends to invest at least 80% of its
net assets in common stocks,  primarily  domestic common stocks, and secondarily
in foreign common stocks denominated in foreign currencies.


                      INVESTMENT POLICIES AND RESTRICTIONS

INDUSTRY  CONCENTRATION  POLICY. As a matter of investment  policy,  the Fund is
concentrated  in REITs,  which means it must,  under normal  market  conditions,
invest  more than 25% of its  total  assets  in REITs or  companies  in the real
estate industry (the "Concentration  Policy").  The Fund must obtain shareholder
approval prior to changing this policy,  thus limiting the Fund's flexibility to
liquidate REITs in the future should market conditions warrant.



FUNDAMENTAL POLICIES. A number of the Fund's investment policies,  listed below,
are "fundamental"  policies (the "Fundamental  Policies"),  which means that the
policies may not be changed without the approval of the holders of a majority of
the Fund's  outstanding  voting securities (which for this purpose and under the
1940 Act means the lesser of (i) 67% of the shares  represented  at a meeting at
which more than 50% of the outstanding  shares are represented or (ii) more than
50% of the outstanding shares). The Fund may not:

     1.   Issue any senior securities except as permitted under the 1940 Act.

     2.   Invest in the  securities  of  companies  conducting  their  principal
          business  activity in the same  industry  if,  immediately  after such
          investment, the value of its investments in such industry would exceed
          25% of the value of its total assets;  provided  that this  limitation
          will not apply to REITs or related  companies in the same  industry as
          REITs.

     3.   Participate  on a joint or a joint and  several  basis in any  trading
          account  in  securities,  except  that the  Fund  may,  to the  extent
          permitted by rules,  regulations or orders of the SEC,  combine orders
          with  others for the  purchases  and sales of  securities  in order to
          achieve the best overall execution.

     4.   Purchase or sell interests in oil, gas or other mineral exploration or
          development programs.

     5.   Purchase or sell real  estate,  except  that the Fund may  purchase or
          sell REITs and securities  secured by real estate or interests therein
          issued by companies owning real estate or interests therein.

     6.   Purchase or sell commodities or commodity contracts.

     7.   Make loans other than  through  the  purchase  of debt  securities  in
          private  placements  and  the  loaning  of  portfolio   securities  as
          described under "Investment Objective and Policies".

     8.   Borrow money in an amount  exceeding the maximum  permitted  under the
          1940 Act.

     9.   Underwrite  securities of other  issuers,  except insofar as it may be
          deemed to be an underwriter in selling a portfolio  security which may
          require registration under the Securities Act of 1933.

     10.  Invest  more than 30% of the value of its total  assets in  securities
          which have been acquired through private placements.

     11.  Purchase or retain the  securities  of any  issuer,  if, to the Fund's
          knowledge,  those officers and directors of the Fund or its investment
          adviser who individually  own beneficially  more than 1/2 of 1% of the
          outstanding securities of such issuer,  together own beneficially more
          than 5% of such outstanding securities.

     12.  Pledge,  mortgage or hypothecate  its assets except in connection with
          permitted borrowing and to the extent related to transactions in which
          the Fund is authorized to engage.

With the exception of the Fund's  investment  objective  (i.e.,  total  return),
Concentration Policy and Fundamental Policies,  all other policies,  statements,
objectives, terms and conditions may be changed by the Fund's Board of Directors
(the "Board") without shareholder approval.


                       INVESTMENT POLICIES AND TECHNIQUES

The following  information  supplements the discussion of the Fund's  investment
objective, policies and techniques that are described in the Prospectus.

PORTFOLIO  INVESTMENTS.  Under  normal  market  conditions,  the Fund intends to
invest at least  80% of its net  assets in  common  stocks,  primarily  domestic
common stocks,  and secondarily in foreign common stocks  denominated in foreign
currencies.  Common stocks include dividend-paying stocks of RICs and REITs. The
portion  of the  Fund's  assets  that is not  invested  in common  stocks may be
invested in fixed  income  securities,  cash  equivalents  and  income-producing
common stocks.  The term  "income-producing  common stocks"  includes RICs whose
objective is income, REITs, and other  dividend-paying  common stocks, while the
term "fixed 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.

     COMMON  STOCKS.  The Fund may  invest  all or any  portion of its assets in
common stock.  Common stock is defined as shares of a  corporation  that entitle
the  holder  to a pro rata  share of the  profits  of the  corporation,  if any,
without  preference  over  any  other  shareholder  or  class  of  shareholders,
including holders of the corporation's  preferred stock and other senior equity.
Common  stock  usually  carries  with it the  right  to vote and  frequently  an
exclusive  right to do so.  Holders  of  common  stock  also  have the  right to
participate in the assets of the corporation after all other claims are paid.



In selecting  common stocks for investment,  the Fund expects to focus primarily
on U.S.-based companies and secondarily on the common stock of foreign companies
denominated  in foreign  currencies.  The Fund is  permitted  to invest  without
limitation in companies outside the U.S.  Generally,  target companies will have
consistent  high returns on equity,  while using modest amounts of debt relative
to their  industries.  The Fund seeks investments in businesses which the Fund's
investment advisers,  Boulder Investment Advisers,  LLC ("BIA") and Stewart West
Indies  Trading  Company,   Ltd.  d/b/a  Stewart  Investment   Advisers  ("SIA")
(collectively  the "Advisers"),  understand,  which have fairly  predictable and
improving future earnings, and most importantly,  are priced reasonably relative
to the businesses'  earnings and anticipated  growth in earnings.  The Fund will
not necessarily  focus its investments in "large-cap",  "mid-cap" or "small-cap"
companies  since  the  Advisers  believe  it  would be  unwise  to  impose  such
investment limitations.  Investments in small or middle capitalization companies
involve  greater  risk  than  is  customarily   associated  with  larger,   more
established  companies due to the greater business risks of small size,  limited
markets and financial  resources,  narrow product lines and the frequent lack of
depth of management. The securities of small or medium-sized companies are often
traded over-the-counter,  and may not be traded in volumes typical of securities
traded on a  national  securities  exchange.  Consequently,  the  securities  of
smaller  companies may have limited market  stability and may be subject to more
abrupt or erratic market  movements than securities of larger,  more established
companies or the market averages in general.

When the Fund makes an  investment  in a common  stock,  it will  likely  make a
significant  investment  and typically hold it for a long period of time. In the
long run,  the Fund  believes  that  value  investing  produces  superior  total
returns.  However,  value stocks can remain undervalued for long periods of time
and may never reach what the Advisers  believe are their full intrinsic  values,
or, as with any  security may decline in value.  In  addition,  value stocks may
fall out of favor with  investors  and may  under-perform  growth  stocks during
given periods.

     REAL ESTATE INVESTMENT  TRUSTS. As a matter of investment  policy, the Fund
is concentrated in REITs,  which means it will, under normal market  conditions,
invest  more than 25% of its  total  assets  in REITs or  companies  in the real
estate  industry.  The Fund must obtain  shareholder  approval prior to changing
this policy. REITs are trusts that invest primarily in commercial real estate or
real  estate-related  loans.  A REIT is not taxed on income  distributed  to its
shareholders  or  unit-holders  if  it  complies  with  regulatory  requirements
relating  to  its  organization,  ownership,  assets  and  income,  and  with  a
regulatory requirement that it distribute to its shareholders or unit-holders at
least 90% of its taxable income for each taxable year.  Generally,  REITs can be
classified as equity REITs, mortgage REITs and hybrid REITs. Equity REITs invest
the majority of their assets  directly in real  property and derive their income
primarily  from rents and  capital  gains  from  appreciation  realized  through
property  sales.  Mortgage  REITs  invest the  majority of their  assets in real
estate  mortgages  and derive their income  primarily  from  interest  payments.
Hybrid REITs combine the  characteristics  of both equity and mortgage REITs. By
investing in REITs indirectly through the Fund,  shareholders will bear not only
the  proportionate  share of the  expenses  of the Fund,  but also,  indirectly,
similar  expenses of underlying  REITs.  The Fund invests in REITs primarily for
income.

The Fund may be subject to certain risks associated with the direct  investments
of the REITs.  REITs may be affected by changes in their  underlying  properties
and by defaults by borrowers or tenants.  Mortgage  REITs may be affected by the
quality of the credit extended.  Furthermore, REITs are dependent on specialized
management  skills.  Some  REITs  may have  limited  diversification  and may be
subject to risks  inherent in financing a limited  number of  properties.  REITs
depend generally on their ability to generate cash flow to make distributions to
shareholders or unit-holders, and may be subject to defaults by borrowers and to
self-liquidations. In addition, a REIT may be affected by its failure to qualify
for  tax-free  pass-through  of income under the Code or its failure to maintain
exemption from registration under the 1940 Act.

     REGISTERED INVESTMENT COMPANIES.  The Fund is permitted to invest up to 10%
of its assets in other registered  investment  companies under the 1940 Act. The
common  stock of  closed-end  RICs can trade at a  substantial  discount  to the
underlying  net asset  value of the RIC,  and the Fund  may,  from time to time,
invest in common  stocks  issued by RICs when they are trading at  discounts  or
when the Advisers otherwise deem market conditions appropriate. The Fund intends
to normally invest in RICs that pay dividends.  RICs that pay regular  dividends
typically  own interest  rate  sensitive  securities,  which tend to increase in
value when interest  rates  decline,  and decrease in value when interest  rates
increase.  To the extent that the Fund invests in RICs, the Fund's  shareholders
will incur expenses with respect to both the Fund and that portion of the Fund's
assets invested in other RICs.  However, as common stocks of closed-end RICs can
trade at  substantial  discounts  to their  underlying  net  asset  values,  the
Advisers may deem the "double"  expense to have minimal  impact when compared to
the  discount  at which the Fund may buy their  shares.  The net asset value and
market value of common stock issued by RICs will fluctuate with the value of the
underlying  assets. The Fund may invest in the auction market preferred stock of
other closed-end funds primarily as a means of investing the Fund's cash for the
short-term in higher  yielding  alternatives  to  repurchase  agreements or U.S.
treasury securities. The Fund will consider investing cash in these instruments,
and other  short-term money market type  alternatives,  when the yield spread is
adequately attractive over repurchase  agreements and U.S. treasuries.  The Fund
generally  will  invest in auction  market  preferred  stocks that are rated AAA
although it may invest in lower rated securities from time to time.



     BONDS.  Prior to April 26, 2002,  the Fund was called  USLIFE  Income Fund,
Inc. and was virtually 100% invested in corporate bonds.  Since the Fund changed
its investment  objective on April 26, 2002, the Advisers have liquidated all of
the Fund's bond  portfolio.  As of June 30, 2005, none of the Fund's assets were
invested in bonds.

Bonds,  or fixed  income  securities,  are debt  obligations  issued by the U.S.
government and its agencies,  corporations,  municipalities and other borrowers.
The  market  values of fixed  income  investments  will  change in  response  to
interest  rate changes and other  factors.  During  periods of falling  interest
rates,  the  values of  outstanding  fixed  income  securities  generally  rise.
Conversely,  during  periods  of  rising  interest  rates,  the  values  of such
securities  generally  decline.  Changes by  recognized  rating  agencies in the
rating of any fixed  income  security  and in the  ability  of an issuer to make
payments of interest and principal  also affect the value of these  investments.
Changes in the value of portfolio  securities will not  necessarily  affect cash
income  derived  from  these  securities,  but will  affect the Fund's net asset
values.

Corporations  issue bonds and notes to raise  money for  working  capital or for
capital  expenditures  such  as  plant  construction,  equipment  purchases  and
expansion.  In return for the money loaned to the  corporation by  shareholders,
the corporation  promises to pay bondholders interest and to repay the principal
amount of the bond or note.

     PREFERRED STOCKS.  The Fund may invest in preferred  securities.  Preferred
securities are equity  securities,  but they have many  characteristics of fixed
income  securities,  such as a fixed  dividend  payment  rate and/or a liquidity
preference over the issuer's common shares.  However,  because  preferred shares
are  equity  securities,  they may be more  susceptible  to risks  traditionally
associated with equity investments than fixed income  securities.  Unlike common
stock, preferred securities typically do not have voting rights.

Fixed rate preferred  stocks have fixed dividend  rates.  They can be perpetual,
with no mandatory  redemption date, or issued with a fixed mandatory  redemption
date.  Certain  issues of  preferred  stock are  convertible  into other  equity
securities.  Perpetual  preferred stocks provide a fixed dividend throughout the
life of the issue, with no mandatory retirement provisions, but may be callable.
Sinking fund  preferred  stocks  provide for the  redemption of a portion of the
issue on a regularly scheduled basis with, in most cases, the entire issue being
retired  at a future  date.  The value of fixed  rate  preferred  stocks  can be
expected to vary inversely with interest rates. Adjustable rate preferred stocks
have a  variable  dividend  rate  which is  determined  periodically,  typically
quarterly,  according to a formula  based on a specified  premium or discount to
the  yield  on  particular  U.S.  Treasury  securities,  typically  the  highest
base-rate yield of one of three U.S.  Treasury  securities:  the 90-day Treasury
bill; the 10-year Treasury note; and either the 20-year or 30-year Treasury bond
or other index.  The premium or discount to be added to or subtracted  from this
base-rate  yield is fixed at the time of issuance and cannot be changed  without
the  approval  of the  holders of the  adjustable  rate  preferred  stock.  Some
adjustable  rate preferred  stocks have a maximum and a minimum rate and in some
cases are convertible into common stock.

Auction  rate  preferred  stocks pay  dividends  that  adjust  based on periodic
auctions. Such preferred stocks are similar to short-term corporate money market
instruments in that an auction rate preferred stockholder has the opportunity to
sell the preferred stock at par in an auction, normally conducted at least every
49 days, through which buyers set the dividend rate in a bidding process for the
next period.  The dividend rate set in the auction depends on market  conditions
and the credit quality of the  particular  issuer.  Typically,  the auction rate
preferred stock's dividend rate is limited to a specified maximum  percentage of
an external commercial paper index as of the auction date. Further, the terms of
the auction rate preferred stocks generally  provide that they are redeemable by
the issuer at certain times or under certain conditions.

The Fund may, from time to time, invest in preferred  securities that are rated,
or whose issuer's senior debt is rated, investment grade by Moody's and Standard
& Poor's ("S&P") at the time of investment,  although the Fund is not limited to
investments in investment grade preferred securities.  In addition, the Fund may
acquire  unrated  issues that the Advisers  deem to be  comparable in quality to
rated issues in which the Fund is authorized to invest.

     MONEY MARKET INSTRUMENTS.  Under normal conditions, the Fund may hold up to
10% of its  assets in cash or money  market  instruments.  The Fund  intends  to
invest in money market  instruments  pending  investments in common  stocks,  to
serve as collateral in connection  with certain  investment  techniques,  and to
hold as a reserve  pending  the  payment of  dividends  to  investors.  When the
Advisers  believe  that  economic  circumstances  warrant a temporary  defensive
posture,  the Fund may invest  without  limitation  in  short-term  money market
instruments.

Money market  instruments  that the Fund may acquire will be securities rated in
the highest  short-term rating category by Moody's or S&P or the equivalent from
another  major rating  service,  securities  of issuers that have  received such
ratings with respect to other short-term debt or comparable unrated  securities.
Money market  instruments in which the Fund typically expects to invest include:
U.S. government securities; bank obligations (including certificates of deposit,
time deposits and bankers'  acceptances  of U.S. or foreign  banks);  commercial
paper rated P-l by Moody's or A-1 by S&P ; and repurchase agreements.

     REPURCHASE AGREEMENTS. The Fund may invest temporarily, without limitation,
in repurchase agreements,  which are agreements pursuant to which securities are
acquired by the Fund from a third party with the understanding that they will be
repurchased by the seller at a fixed price on an agreed date.  These  agreements
may be made with respect to any of the portfolio securities in which the Fund is
authorized  to  invest.  Repurchase  agreements  may be  characterized  as loans
secured  by the  underlying  securities.  The Fund  may  enter  into  repurchase
agreements  with (i) member  banks of the Federal  Reserve  System  having total
assets in excess of $500 million and (ii) securities dealers, provided that such
banks or dealers  meet  certain  creditworthiness  standards.  The resale  price
reflects the purchase price plus an agreed upon market rate of interest which is
unrelated to the coupon rate or date of maturity of the purchased security.  The
collateral is marked to market daily.  Such  agreements  permit the Fund to keep
all its assets  earning  interest  while  retaining  "overnight"  flexibility in
pursuit of investments of a longer term nature.



The use of repurchase  agreements  involves certain risks.  For example,  if the
seller of securities under a repurchase  agreement defaults on its obligation to
repurchase  the  underlying  securities,  as  a  result  of  its  bankruptcy  or
otherwise, the Fund will seek to dispose of such securities,  which action could
involve  costs or  delays.  If the  seller  becomes  insolvent  and  subject  to
liquidation or  reorganization  under  applicable  bankruptcy or other laws, the
Fund's  ability to  dispose  of the  underlying  securities  may be  restricted.
Finally,  it is  possible  that  the Fund  may not be able to  substantiate  its
interest in the  underlying  securities.  To minimize this risk,  the securities
underlying the  repurchase  agreement will be held by the custodian at all times
in an amount at least equal to the repurchase price, including accrued interest.
If the seller fails to repurchase the securities,  the Fund may suffer a loss to
the extent proceeds from the sale of the underlying securities are less than the
repurchase price.

     GOVERNMENT  SECURITIES.  The Fund may  invest in  securities  that  include
direct  obligations  of  the  United  States  and  obligations  issued  by  U.S.
government agencies and instrumentalities  ("Government  Securities").  Included
among direct obligations of the United States are Treasury bills, Treasury notes
and Treasury  bonds,  which  differ  principally  in terms of their  maturities.
Securities  issued  by  U.S.  government  agencies  and  instrumentalities  are:
securities  that are supported by the full faith and credit of the United States
(such as Government National Mortgage Association certificates); securities that
are supported by the right of the issuer to borrow from the U.S.  Treasury (such
as securities of Federal Home Loan Banks);  and securities that are supported by
the credit of the instrumentality (such as Federal National Mortgage Association
and Federal Home Loan  Mortgage  Corporation  bonds).  No assurance can be given
that the U.S.  government will provide  financial  support in the future to U.S.
government agencies,  authorities or instrumentalities that are not supported by
the full faith and  credit of the United  States.  Securities  guaranteed  as to
principal  and interest by the U.S.  government,  its agencies,  authorities  or
instrumentalities  include (i) securities for which the payment of principal and
interest  is  backed  by an  irrevocable  letter  of  credit  issued by the U.S.
government or any of its agencies,  authorities or  instrumentalities;  and (ii)
participations in loans made to non-U.S.  governments or other entities that are
so  guaranteed.  The  secondary  market for certain of these  participations  is
limited and therefore may be regarded as illiquid.

     ZERO COUPON  SECURITIES.  The Fund may invest up to 10% of its total assets
in zero  coupon  securities  issued  by the U.S.  government,  its  agencies  or
instrumentalities as well as custodial receipts or certificates  underwritten by
securities dealers or banks that evidence ownership of future interest payments,
principal  payments  or both  on  certain  government  securities.  Zero  coupon
securities  pay no cash income to their holders until they mature and are issued
at substantial  discounts  from their value at maturity.  When held to maturity,
their entire return comes from the  difference  between their purchase price and
their maturity value.  Because interest on zero coupon securities is not paid on
a current  basis,  the values of  securities of this type are subject to greater
fluctuations  than are the values of securities that distribute income regularly
and may be more  speculative than such  securities.  Accordingly,  the values of
these  securities  may be highly  volatile  as interest  rates rise or fall.  In
addition,  the Fund's  investments  in zero  coupon  securities  will  result in
special tax  consequences.  Although zero coupon securities do not make interest
payments,  for tax  purposes a portion of the  difference  between a zero coupon
security's  maturity  value and its purchase price is taxable income of the Fund
each year.

Custodial  receipts  evidencing  specific coupon or principal  payments have the
same  general  attributes  as  zero  coupon  Government  Securities  but are not
considered to be Government Securities.  Although typically under the terms of a
custodial  receipt the Fund is authorized to assert its rights directly  against
the issuer of the  underlying  obligation,  the Fund may be  required  to assert
through  the  custodian  bank such rights as may exist  against  the  underlying
issuer.  Thus, in the event the underlying  issuer fails to pay principal and/or
interest  when due,  the Fund may be subject to delays,  expenses and risks that
are greater than those that would have been involved if the Fund had purchased a
direct  obligation  of the issuer.  In addition,  in the event that the trust or
custodial  account  in which  the  underlying  security  has been  deposited  is
determined  to  be  an  association  taxable  as  a  corporation,  instead  of a
non-taxable  entity,  the yield on the  underlying  security would be reduced in
respect of any taxes paid.

     BORROWINGS.  The Fund  reserves  the  right to borrow  funds to the  extent
permitted by its Fundamental  Policies.  See  "Fundamental  Policies" above. The
proceeds of  borrowings  may be used for any valid  purpose  including,  without
limitation,  liquidity,  investing and repurchases of capital stock of the Fund.
The Fund may borrow  money only in an amount up to one-third of the value of the
Fund's  total  assets.  Borrowing  is a form of leverage  and, in that  respect,
entails risks,  including volatility in net asset value, market value and income
available for distribution.



     LENDING OF SECURITIES.  The Fund is authorized to lend  securities it holds
to  brokers,  dealers  and other  financial  organizations,  although  it has no
current intention of doing so. Loans of the Fund's securities, if and when made,
may not  exceed  33-1/3%  of the  Fund's  total  assets.  The  Fund's  loans  of
securities  will be  collateralized  by cash,  letters  of credit or  Government
Securities that will be maintained at all times in a segregated account with the
Fund's  custodian in an amount at least equal to the current market value of the
loaned  securities.  From time to time,  the Fund may pay a part of the interest
earned from the investment of collateral  received for securities  loaned to the
borrower  and/or a third  party that is  unaffiliated  with the Fund and that is
acting as a "finder."

By  lending  its  portfolio  securities,  the Fund can  increase  its  income by
continuing to receive interest on the loaned  securities,  by investing the cash
collateral  in  short-term  instruments  or by  obtaining  yield  in the form of
interest paid by the borrower when Government Securities are used as collateral.
The risk in lending  portfolio  securities,  as with other extensions of credit,
consists of the  possible  delay in recovery of the  securities  or the possible
loss of rights in the collateral should the borrower fail financially.  The Fund
will adhere to the following  conditions  whenever it lends its securities:  (i)
the Fund must receive at least 100% cash  collateral  or  equivalent  securities
from the borrower, which will be maintained by daily marking-to-market; (ii) the
borrower  must  increase  the  collateral  whenever  the  market  value  of  the
securities  loaned rises above the level of the collateral;  (iii) the Fund must
be able to terminate the loan at any time; (iv) the Fund must receive reasonable
interest on the loan, as well as any dividends,  interest or other distributions
on the loaned  securities and any increase in market value; (v) the Fund may pay
only  reasonable  custodian  fees in connection  with the loan;  and (vi) voting
rights on the loaned  securities  may pass to the  borrower,  except that,  if a
material  event  adversely  affecting the  investment  in the loaned  securities
occurs,  the Board must  terminate  the loan and regain the Fund's right to vote
the securities.

     SHORT SALES AGAINST THE BOX. The Fund may make short sales of securities in
order to reduce  market  exposure  and/or to increase its income if at all times
when a short  position is open, the Fund owns an equal or greater amount of such
securities or owns preferred stock, debt or warrants convertible or exchangeable
into an equal or greater number of the shares of common stocks sold short. Short
sales of this  kind are  referred  to as short  sales  "against  the  box."  The
broker-dealer  that executes a short sale generally invests the cash proceeds of
the sale  until  they are paid to the  Fund.  Arrangements  may be made with the
broker-dealer  to obtain a portion of the  interest  earned by the broker on the
investment  of short  sale  proceeds.  The Fund will  segregate  the  securities
against  which short sales  against the box have been made in a special  account
with its custodian. Not more than 10% of the Fund's net assets (taken at current
value) may be held as collateral for such sales at any one time.

     ILLIQUID   SECURITIES.   The  Fund  may  invest  in  illiquid   securities.
Historically,   illiquid   securities  have  included   securities   subject  to
contractual  or  legal  restrictions  on  resale  because  they  have  not  been
registered  under  the 1933 Act,  securities  which are  otherwise  not  readily
marketable  and  repurchase  agreements  having a maturity  of longer than seven
days.  Restricted  securities are securities  that may not be sold freely to the
public  absent   registration   under  the  1933  Act,  or  an  exemption   from
registration. The Fund has no limitation on the amount of its assets that may be
invested  in  securities  which are not  readily  marketable  or are  subject to
restrictions on resale, although it may not invest more than 30% of the value of
its  total  assets  in  securities  which  have been  acquired  through  private
placement.

The Board has  delegated  the function of making  day-to-day  determinations  of
liquidity to the Advisers pursuant to guidelines approved by the Board. The Fund
is a  closed-end  fund which means that  managing  liquidity  for the purpose of
shareholder  redemptions  is not an  issue  as it  might  otherwise  be  with an
open-end fund.  Accordingly,  the Advisers are not constrained in this regard in
their day-to-day  management of the portfolio,  knowing that redemptions are not
an issue.  Moreover, a majority of the securities in the Fund, both historically
and currently, are exchange-traded securities with relatively good liquidity. In
the few cases where the liquidity of certain securities is less so, the Advisers
will take into  account a number of factors  in  reaching  liquidity  decisions,
including, but not limited to: (1) the frequency of trades for the security, (2)
the number of dealers  willing and ready to purchase and sell the security,  (3)
whether any dealers have agreed to make a market in the security, (4) the number
of other  potential  purchasers  for the  security,  and (5) the  nature  of the
securities and the nature of the marketplace trades.

     WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT TRANSACTIONS. The Fund
may  purchase  and  sell  securities,  including  Government  Securities,  on  a
when-issued,  delayed delivery or forward commitment basis. Typically, no income
accrues on  securities  the Fund has  committed  to  purchase  prior to the time
delivery  of the  securities  is made,  although  the Fund  may earn  income  on
securities it has segregated.

When  purchasing  a security  on a  when-issued,  delayed  delivery,  or forward
commitment  basis,  the Fund  assumes the rights and risks of  ownership  of the
security, including the risk of price fluctuations,  and takes such fluctuations
into  account  when  determining  its net asset  value.  Because the Fund is not
required to pay for the  security  until the delivery  date,  these risks are in
addition to the risks associated with the Fund's other investments.  If the Fund
remains  substantially  fully  invested  at a  time  when  when-issued,  delayed
delivery,  or forward  commitment  purchases are outstanding,  the purchases may
result in a form of leverage.



When the Fund has sold a security on a when-issued, delayed delivery, or forward
commitment  basis,  the Fund does not participate in future gains or losses with
respect to the security. If the other party to a transaction fails to deliver or
pay for  the  securities,  the  Fund  could  miss a  favorable  price  or  yield
opportunity  or could suffer a loss.  The Fund may dispose of or  renegotiate  a
transaction after it is entered into, and may sell when-issued, delayed delivery
or forward commitment securities before they are delivered,  which may result in
a capital gain or loss. There is no percentage limitation on the extent to which
the Fund may purchase or sell securities on a when-issued,  delayed delivery, or
forward commitment basis.


OTHER INVESTMENT TECHNIQUES AND POLICIES

     PREFERRED SHARES LEVERAGE. The Prospectus  contemplates an offering whereby
the Fund will be leveraged with 1,000  Preferred  Shares.  The Preferred  Shares
will be senior to the common stock and will result in the  financial  leveraging
of the common stock. Dividends on Preferred Shares are cumulative. The Fund will
be required to meet certain asset  coverage  tests with respect to the Preferred
Shares.  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, the Preferred
Shares at a  redemption  price of $25,000 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.
Nevertheless, the Fund's management believes that well-managed leverage can have
a beneficial  effect on common stock  shareholders'  total return.  Leverage can
provide enough additional income to pay a substantial  portion of Fund expenses,
if there is enough of a  positive  spread  between  the  borrowed  money and the
return on the assets  acquired  with such  monies.  Use of  leverage  may have a
number of  adverse  effects  on the Fund and its  shareholders,  including:  (i)
leverage may magnify market  fluctuations in the Fund's underlying holdings thus
causing a disproportionate change in the Fund's net asset value; (ii) the Fund's
cost of leverage  may exceed the return on the  underlying  securities  acquired
with the proceeds of the leverage, thereby diminishing rather than enhancing the
return to  shareholders  and  generally  making the Fund's  total return to such
shareholders  more volatile;  (iii) the Fund may be required to sell investments
in order to meet  dividend or interest  payments on the debt or preferred  stock
when  it may be  disadvantageous  to do so;  and  (iv)  leveraging  through  the
issuance of preferred  stock  requires that the holders of the  preferred  stock
have class voting  rights on various  matters that could make it more  difficult
for the  holders  of the  common  stock to change the  investment  objective  or
fundamental  policies  of the Fund,  to convert it to an  open-end  fund or make
certain other changes.

Although the Fund will focus its use of leverage on producing  income,  the Fund
may also purchase  other income  producing  securities  (e.g.,  RICs,  REITs and
dividend-paying  common  stocks)  or   non-dividend-paying   common  stocks  for
long-term  appreciation.  The  Fund is  limited  in its use of  leverage  to the
maximum amount permitted pursuant to Section 18 of the 1940 Act.

     RISKS ASSOCIATED WITH LEVERAGE. The Preferred Shares leverage (or any other
leverage) will create an opportunity for increased return but, at the same time,
will involve special risk  considerations.  Leveraging will magnify  declines as
well as  increases  in the net asset  value of the  common  stock and in the net
return on the Fund's  portfolio.  Although the principal of the Fund's Preferred
Shares will be fixed,  the Fund's assets may change in value during the time the
Preferred Shares are outstanding,  thus increasing  exposure to capital risk. To
the extent the return derived from the assets obtained with the Preferred Shares
proceeds exceeds the interest and other expenses that the Fund will have to pay,
the Fund's net return will be greater than if Preferred  Shares leverage was not
used.  Conversely,  however,  if the return  from the assets  obtained  with the
Preferred  Shares  proceeds is not sufficient to cover the dividends and cost of
the Preferred Shares,  the net return of the Fund will be less than if Preferred
Shares   leverage  was  not  used,  and  therefore  the  amount   available  for
distribution to the Fund's shareholders as dividends will be reduced.

     BORROWING THROUGH  REPURCHASE  AGREEMENTS.  The Fund may borrow by entering
into reverse  repurchase  agreements with any member bank of the Federal Reserve
System and any broker-dealer or any foreign bank that has been determined by the
Advisers to be  creditworthy.  Under a reverse  repurchase  agreement,  the Fund
would sell securities and agree to repurchase them at a mutually agreed date and
price. At the time the Fund enters into a reverse repurchase agreement,  it will
establish  and maintain a segregated  account with its custodian or a designated
sub-custodian,  containing  cash or liquid  obligations  having a value not less
than the repurchase  price  (including  accrued  interest).  Reverse  repurchase
agreements  involve the risk that the market value of the  securities  purchased
with the  proceeds  of the sale of  securities  received by the Fund may decline
below the price of the securities  the Fund is obligated to  repurchase.  In the
event the buyer of securities  under a reverse  repurchase  agreement  files for
bankruptcy  or  becomes  insolvent,  the buyer or its  trustee or  receiver  may
receive  an  extension  of time to  determine  whether  to  enforce  the  Fund's
obligation to repurchase the  securities,  and the Fund's use of the proceeds of
the reverse  repurchase  agreement may  effectively  be  restricted  pending the
decision.  Any reverse  repurchase  agreements  entered into by the Fund will be
treated  as  borrowings  for  purposes  of  calculating  the  Fund's   borrowing
limitation.




                             MANAGEMENT OF THE FUND

The Board is  responsible  for the  overall  management  of the Fund,  including
supervision of the duties performed by the Advisers. There are five Directors of
the Fund. One of the Directors is an "interested person" of the Fund (as defined
in the 1940 Act). The Directors who are not "interested persons" of the Fund are
referred to herein as "Independent  Directors." See the "Management of the Fund"
in the Prospectus for additional information about the Directors and officers of
the Fund.



                 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following  table sets forth  certain  information  regarding the  beneficial
ownership of the Fund's shares as of June ___, 2005, by each person who is known
by the Fund to beneficially own 5% or more of the Fund's common stock.




        Name and address* of Owner      Number of Shares         Number of Shares          Percentage
                                         Directly Owned         Beneficially Owned      Beneficially Owned
                                                                               
Ernest Horejsi Trust No.1B (the         2,354,600               2,354,600               20.79%
"EH Trust")

Badlands Trust Company, LLC                                     ---**                   20.79%

Stewart R. Horejsi Trust No. 2A                                 ---**                   20.79%

Aggregate Shares Owned**                                        2,354,600               20.79%

_______________________

* The  address  of  each  listed  owner  is  c/o  Badlands  Trust  Company,  LLC
("Badlands"), 3601 C Street, Suite 600, Anchorage, Alaska 99503.

** Excludes  shares owned by the EH Trust.  Badlands is one of three trustees of
the EH Trust.  Badlands is a private trust company  organized  under the laws of
Alaska  and is  wholly  owned  by the  Stewart  R.  Horejsi  Trust  No.  2A,  an
irrevocable  trust organized by Stewart R. Horejsi for the benefit of his issue.
The managers of Badlands are Larry Dunlap, Stephen C. Miller, Laura Rhodenbaugh,
Laura Tatooles,  and Ron Kukes,  each of whom disclaim  beneficial  ownership of
shares owned by the EH Trust. Mr. Miller is an officer and director of Badlands.
Because two of the Trust's  trustees are required in order for the Trust to vote
or exercise dispositive authority with respect to shares owned by the Trust, Mr.
Miller disclaims beneficial ownership of such shares.

Information  as to  beneficial  ownership  in the  previous  paragraph  has been
obtained from a representative of the beneficial  owners;  all other information
as to  beneficial  ownership is based on reports filed with the  Securities  and
Exchange Commission (the "SEC") by such beneficial owners.

As of June ___, 2005, Cede & Co., a nominee  partnership of the Depository Trust
Fund, held of record, but not beneficially,  __________shares  or ___% of common
stock  outstanding of the Fund. As of June ___, 2005,  officers and Directors of
the Fund,  as a group,  owned  ____________shares  of the  Fund's  common  stock
(including  the  aggregate  shares of common  stock owned by the EH Trust as set
forth above), representing ______% of common stock.



                       OWNERSHIP OF THE FUND BY DIRECTORS

     Set forth in the  following  table  are the  current  members  of the Board
together with the dollar range of equity securities  beneficially  owned by each
Director as of December 31, 2004, as well as the  aggregate  dollar range of the
Fund's  equity  securities  in all  funds  overseen  in  the  Fund's  family  of
investment  companies  (i.e.,  other funds managed by BIA and SIA and which hold
themselves out as related companies).





                                           Dollar Range of Equity         Aggregate Dollar Range of
                                           Securities in the Fund       Equity Securities in All Funds
                                                                         in the Family of Investment
                                                                                   Companies
                                                                  
        Independent Directors
----------------------------------------------------------------------------------------------------------------------
        Alfred G. Aldridge, Jr.            $10,001 to $50,000           $50,001 to $100,000
        
        Richard I. Barr                    $50,001 to $100,000          Over $100,000
        
        Joel W. Looney                     $50,001 to $100,000          Over $100,000
        
        Dennis R. Causier                  $0                           $0
        

        Interested Director
------------------------------------------------------------------------------------------------------------------------
        John S. Horejsi                    Over $100,000+               Over $100,000


+  2,354,600  shares  of the  Fund are held by the EH  Trust.  Accordingly,  Mr.
Horejsi may be deemed to have indirect beneficial  ownership of such Shares. Mr.
Horejsi disclaims all such beneficial  ownership.  Mr. Horejsi does not directly
own any shares of the Fund.

     None  of  the   Independent   Directors  or  their  family   members  owned
beneficially  or of record any securities of the Advisers or any person directly
or  indirectly  controlling,  controlled  by, or under  common  control with the
Advisers.



                        DIRECTOR AND OFFICER COMPENSATION

     The  following   table  sets  forth  certain   information   regarding  the
compensation of the Independent Directors for the fiscal year ended November 30,
2004.  No persons  other than the  Independent  Directors,  as set forth  below,
currently  receive  compensation  from the  Fund for  acting  as a  Director  or
officer. Directors and officers of the Fund do not receive pension or retirement
benefits from the Fund.



                                            Aggregate             Total Compensation from
  Name of Person and Position with the  Compensation from       the Fund and Fund Complex
                  Fund                       the Fund               Paid to Directors
------------------------------------------------------------------------------------------------
                                                          
Alfred G. Aldridge, Jr., Director       $23,000                 $49,500
                                                                (2 funds)


Richard I. Barr, Director               $23,000                 $53,500
                                                                (2 funds)

Joel W. Looney, Director and Chairman   $25,000                 $53,500
of the Board                                                    (2 funds)

Dennis R. Causier, Director             $4,533                  $4,533
                                                                (1 fund)



     Each  Independent  Director  receives a fee of $8,000 per annum plus $3,000
for each in person meeting,  $500 for each Audit Committee  meeting and $500 for
each telephonic meeting of the Board. In addition, the Chairman of the Board and
the Chairman of the Audit Committee  receives an additional  $1,000 per meeting.
Each Independent Director of the Fund is reimbursed for travel and out-of-pocket
expenses associated with attending Board and Committee meetings.  The Board held
eight meetings (four of which were held by telephone conference call) during the
fiscal year ended  November 30, 2004.  Each Director  currently  serving in such
capacity  for the entire  fiscal year  attended at least 75% of the  meetings of
Directors and any Committee of which he is a member. Directors currently serving
and who served less than the entire  fiscal  year  attended at least 75% of such
meetings held during their tenure as a Director. The aggregate remuneration paid
to the  Independent  Directors  of the Fund for acting as such during the fiscal
year ended November 30, 2004 amounted to $75,532.97.




                      COMMITTEES OF THE BOARD OF DIRECTORS

AUDIT COMMITTEE. The Fund has an audit committee consisting solely of all of the
Fund's Independent Directors (i.e., Messrs. Looney, Aldridge,  Causier and Barr)
(the "Audit  Committee").  The purpose of the Audit  Committee  is to assist the
Board in its oversight of the integrity of the Fund's financial statements,  the
Fund's   compliance   with   legal   and   regulatory   requirements,   and  the
qualifications,   independence   and  performance  of  the  Fund's   independent
registered  public accounting firm (the  "independent  accountants").  The Audit
Committee  reviews  the scope and  results of the Fund's  annual  audit with the
Fund's independent accountants and recommends the engagement of such independent
accountants.   Management,   however,   is  responsible  for  the   preparation,
presentation  and  integrity  of  the  Fund's  financial  statements,   and  the
independent  accountants  are  responsible  for planning and carrying out proper
audits and reviews.  The Board adopted a written charter for the Audit Committee
on January 23, 2002 and most recently amended the Charter on January 23, 2004. A
copy of the Audit  Committee  Charter was  attached as an appendix to the Fund's
proxy statement in 2004.  Each member of the Audit Committee is independent,  as
that term is defined by the New York Stock Exchange ("NYSE") Listing  Standards.
The Audit  Committee  met two times  during the fiscal year ended  November  30,
2004.

NOMINATING  COMMITTEE.  The Board has a nominating  committee  (the  "Nominating
Committee") consisting solely of the Independent Directors, which is responsible
for considering  candidates for election to the Board in the event a position is
vacated or created.  Each member of the Nominating Committee is independent,  as
that term is defined by the NYSE Listing Standards. The Nominating Committee met
three times during the fiscal year ended November 30, 2004.

The  Nominating  Committee  does  not  have a  formal  process  for  identifying
candidates. The Nominating Committee takes into consideration such factors as it
deems  appropriate  when  nominating  candidates.   These  factors  may  include
judgment,  skill,  diversity,  experience  with  investment  companies and other
organizations  of comparable  purpose,  complexity,  size and subject to similar
legal  restrictions and oversight,  the interplay of the candidate's  experience
with  the  experience  of other  Board  members,  and the  extent  to which  the
candidate would be a desirable addition to the Board and any committees thereof.
The  Nominating  Committee  will consider all  qualified  candidates in the same
manner.  The  Nominating  Committee may modify its policies and  procedures  for
director  nominees  and  recommendations  in  response  to changes in the Fund's
circumstances, and as applicable legal or listing standards change.

The  Nominating  Committee  will consider  director  candidates  recommended  by
shareholders  (if a vacancy  were to exist) and  submitted  in  accordance  with
applicable law and the following procedures.  Pursuant to the Fund's By-laws, at
any annual  meeting of the  shareholders,  only  business that has been properly
brought before the meeting will be conducted.  To be properly brought before the
annual  meeting,  the business  must be (i)  specified in the notice of meeting,
(ii) by or at the direction of the Board,  or (iii) otherwise  properly  brought
before the meeting by a shareholder.  For business to be properly brought before
the annual  meeting by a  shareholder,  the  shareholder  must have given timely
notice  thereof  in  writing  to the  Secretary  of the Fund.  To be  timely,  a
shareholder's  notice must be  delivered  to the  Secretary of the Fund no later
than 5:00 p.m.,  Mountain Time, on the 120th day prior to the first  anniversary
of the date of mailing of the notice for the preceding  year's  annual  meeting.
However,  if the date of the annual  meeting is advanced or delayed by more than
30 days from the first  anniversary  of the date of the preceding  year's annual
meeting,  for notice by the  shareholder to be timely,  it must be delivered not
later than 5:00 p.m.,  Mountain Time, on the later of the 120th day prior to the
date of such annual  meeting or the tenth day  following the day on which public
announcement of the date of such meeting is first made. The public  announcement
of a  postponement  or adjournment of an annual meeting shall not commence a new
time period for the giving of a shareholder's notice as described above.


Pursuant to the Fund's By-laws,  such shareholder's notice shall set forth as to
each  individual  whom the  shareholder  proposes  to nominate  for  election or
reelection  as a director,  (A) the name,  age,  business  address and residence
address of such  individual,  (B) the class,  series and number of any shares of
stock of the Fund that are beneficially  owned by such individual,  (C) the date
such shares were acquired and the  investment  intent of such  acquisition,  (D)
whether  such  shareholder  believes  any  such  individual  is,  or is not,  an
"interested  person" of the Fund,  as  defined  in the 1940 Act and  information
regarding such individual that is sufficient,  in the discretion of the Board or
any  committee  thereof  or any  authorized  officer  of the Fund,  to make such
determination and (E) all other information  relating to such individual that is
required to be disclosed in  solicitations  of proxies for election of directors
in an election  contest  (even if an election  contest is not  involved),  or is
otherwise  required,  in each case pursuant to Regulation  14A (or any successor
provision) under the Securities  Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules thereunder  (including such individual's written consent to
being named in the proxy  statement as a nominee and to serving as a director if
elected).




                 INVESTMENT ADVISERS AND OTHER SERVICE PROVIDERS

The Fund is  co-advised  by Boulder  Investment  Advisers,  LLC and Stewart West
Indies Trading Company,  Ltd. d/b/a Stewart  Investment  Advisers.  The Advisers
have been providing  advisory  services to the Fund since January,  2002, and to
Boulder Total Return Fund,  Inc.  since March,  1999. As of June ___,  2005, the
Advisers had a total of $_____ million in assets under management.

BOULDER INVESTMENT ADVISERS, LLC. BIA was formed on April 8, 1999, as a Colorado
limited liability  company and is registered as an investment  adviser under the
Investment  Advisers Act of 1940, as amended.  Stewart R. Horejsi is an employee
of and  investment  manager  for  both  Advisers  and has  extensive  experience
managing  common stocks for the Fund as well as for the various other trusts and
entities  affiliated  with the Horejsi  family (the "Horejsi  Affiliates").  The
members of BIA are Evergreen  Atlantic,  LLC, whose address is 1680 38th Street,
Suite  800,  Boulder,  Colorado  80301 and the Lola Brown  Trust No.  1B,  whose
address is c/o Badlands Trust Company, LLC, 3601 C Street, Suite 600, Anchorage,
Alaska  99503 (the  "Members").  Each of the Members hold a 50% interest in BIA.
The Members are "affiliated persons" of the Fund (as that term is defined in the
1940 Act).  Both Mr.  Horejsi and John S.  Horejsi,  Mr.  Horejsi's  son and the
Fund's  "interested"  Director,  are discretionary  beneficiaries under the Lola
Brown Trust No. 1B as well as under other Horejsi Affiliates which own Evergreen
Atlantic,  LLC. Accordingly,  as a result of this relationship,  both Stewart R.
Horejsi  and  John S.  Horejsi  may  directly  or  indirectly  benefit  from the
relationship between the Fund and BIA.

STEWART INVESTMENT ADVISERS.  SIA is a Barbados  international  business company
incorporated  on November  12,  1996.  SIA is wholly  owned by the Stewart  West
Indies Trust (the "West Indies Trust"), an irrevocable trust domiciled in Alaska
and established by Mr. Horejsi in 1996 primarily to benefit his issue.  The West
Indies Trust's address is c/o Badlands Trust Company,  LLC, 3601 C Street, Suite
600,  Anchorage,  Alaska 99503. Mr. Horejsi is not a beneficiary  under the West
Indies  Trust.  However,  John S.  Horejsi,  Mr.  Horejsi's  son and the  Fund's
"interested"  Director,  is a  discretionary  beneficiary  under the West Indies
Trust and thus,  as a result of this  relationship,  may directly or  indirectly
benefit from the relationship between SIA and the Fund.

SIA is not  domiciled in the United States and  substantially  all of its assets
are located  outside the United  States.  As a result,  it may be  difficult  to
realize  judgments  of  courts  of  the  United  States  predicated  upon  civil
liabilities  under federal  securities  laws of the United States.  The Fund has
been  advised  that  there  is  substantial  doubt as to the  enforceability  in
Barbados of such civil  remedies and  criminal  penalties as are afforded by the
federal securities laws of the United States. Pursuant to the advisory agreement
between SIA and the Fund, SIA has appointed the Secretary of the Fund (presently
Stephanie  Kelley in Boulder,  Colorado)  as its agent for service of process in
any legal action in the United States, thus subjecting it to the jurisdiction of
the United States courts.

CO-ADVISORY  AGREEMENTS.  The  Advisers  and the Fund are parties to  investment
co-advisory  agreements dated as of April 26, 2002 (the "Advisory  Agreements").
Under  the terms of the  Advisory  Agreements,  the  Advisers  provide  advisory
services regarding asset allocation,  manage the investment of the Fund's assets
and provide such investment research, advice and supervision, in conformity with
the Fund's investment objective and policies, as necessary for the operations of
the Fund. The Advisory Agreements provide, among other things, that the Advisers
will bear all expenses in  connection  with the  performance  of their  services
under the Advisory Agreements.

The  Advisory  Agreements  provide  that the Fund shall pay to the  Advisers for
their  services  an  aggregate  monthly  fee at the annual  rate of 1.25% of the
Fund's average monthly net assets,  including the principal  amount of leverage,
if any (the "Adviser Fee"). The Adviser Fee is higher than the fees paid by most
similarly situated U.S.  investment  companies.  Under the terms of the Advisory
Agreements, the Advisers share the Adviser Fee as determined by the Advisers and
approved by the Board from time to time. Presently,  BIA and SIA receive 25% and
75%,  respectively,  of the Adviser Fee.  Although the Advisers intend to devote
such  time  and  effort  to the  business  of the Fund as they  deem  reasonably
necessary to perform their  respective  duties to the Fund,  the services of the
Advisers are not  exclusive  and the Advisers  may provide  similar  services to
other investment companies and other clients and may engage in other activities.

The Advisory  Agreements  provide that the Advisers  shall not be liable for any
error of judgment or mistake of law or omission or any loss suffered by the Fund
in  connection  with the matters to which the  agreements  relate,  although the
agreements  do not  protect  or  purport to protect  the  Advisers  against  any
liability to the Fund to which the Advisers would otherwise be subject by reason
of  willful  misfeasance,  bad faith or gross  negligence  on their  part in the
performance  of  their  duties  or from  reckless  disregard  by  them of  their
obligations  and duties  under the  agreements.  Each  Advisory  Agreement  also
provides for  indemnification  by the Fund of the  Advisers and their  partners,
members,  officers,  employees,  agents  and  control  persons  for  liabilities
incurred  by them in  connection  with their  services  to the Fund,  subject to
certain limitations and conditions.

PORTFOLIO MANAGERS.  Stewart R. Horejsi is the Fund's primary investment manager
and,  together with Carl D. Johns,  the Fund's Vice President and Treasurer,  is
responsible for the day-to-day  management of the Fund's assets.  Mr. Horejsi is
primarily  responsible for the Fund's asset allocation and Mr. Johns,  also Vice
President and Treasurer  for BIA, is  responsible  for research and managing the
Fund's fixed income portfolio.  Messrs. Horejsi and Johns are referred to herein
as the  "Portfolio  Managers".  The  Portfolio  Managers  act  as the  portfolio
managers with respect to the Fund and one other registered  investment  company,
the Boulder Total Return Fund,  Inc.  ("BTF").  As of November 30, 2004, BTF had
total assets of approximately $_____. Mr. Horejsi also acts as portfolio manager
with respect to a client of the Advisers who is a Horejsi Affiliate, the Horejsi
Charitable  Foundation,  which has total assets of approximately  $_______ as of
November  30,  2004.  Mr.  Horejsi  also acts as a financial  consultant  to the
Horejsi  Affiliates and manages their portfolios of equities having an aggregate
value of approximately $_______ as of November 30, 2004.



The Portfolio Managers are compensated with fixed salaries which are established
based on a number of considerations,  including, among others, job and portfolio
performance,  industry compensation and comparables, and years of experience and
service with the Adviser.  The Portfolio Managers are reviewed from time to time
and their  salaries  may be adjusted  based on their  recent and  long-term  job
performance and cost of living increases.  Generally,  the Portfolio Managers do
not receive  bonuses.  Conflicts  of interest may arise in  connection  with the
Portfolio Managers'  management of the Fund's  investments.  This is because the
Portfolio  Managers  also  serve  as  portfolio  managers  to BTF and the  other
accounts  described  above  that may have  investment  objectives  identical  or
similar to those of the Fund. See "Potential Conflicts of Interest" below.

Mr. Horejsi does not directly own any shares of the Fund. However, the EH Trust,
which has engaged Mr. Horejsi as a financial consultant and of which Mr. Horejsi
is a  discretionary  beneficiary,  holds  2,354,600  shares  of the  Fund  as of
November  30,  2004.  Accordingly,  Mr.  Horejsi may be deemed to have  indirect
beneficial  ownership  of such shares  which have a dollar range in excess of $1
million.  Mr. Horejsi disclaims all such beneficial  ownership.  Mr. Johns holds
between [$10,001 and $50,000] of the shares of the Fund as of November 30, 2004.

FUND ADMINISTRATIVE  SERVICES, LLC. Fund Administrative Services, LLC ("FAS") is
the Fund's co-administrator.  FAS is a Colorado limited liability company formed
in 1994.  Its  principal  place of business is 200 S. Santa Fe, #4,  Salina,  KS
67401 and it has offices in Colorado at 1680 38th  Street,  Suite 800,  Boulder,
Colorado  80301.  The  members  of FAS are Lola  Brown  Trust  No.  1B (50%) and
Evergreen Atlantic, LLC (50%). Stewart R. Horejsi, the Fund's portfolio manager,
and his son John S. Horejsi, the Fund's "interested" Director, are discretionary
beneficiaries  of the Lola  Brown  Trust No.  1B,  and of the  trusts  which own
Evergreen  Atlantic,  LLC. The  officers of FAS are Stephen C. Miller,  manager;
Carl Johns,  assistant  manager;  Laura  Rhodenbaugh,  secretary/treasurer;  and
Stephanie  Kelley,  assistant  secretary.  Since  January of 2002,  FAS has been
providing certain  administrative and executive management services to the Fund,
including  among  other  things  negotiation  of  service  provider   contracts,
oversight  of  service  providers,   maintenance  of  the  Fund's  policies  and
procedures, and provision of compliance, legal and fund accounting services. FAS
has also  provided such  administrative  and  executive  management  services to
Boulder Total Return Fund, Inc. since March of 1999 and to First Financial Fund,
Inc. since August of 2003.

The Fund and FAS are parties to an  administration  agreement  dated February 1,
2004.  Under the  administration  agreement,  the Fund  pays FAS a  monthly  fee
calculated at an annual rate of 0.20% of the value of the Fund's average monthly
net assets up to $250 million; 0.18% of the Fund's average monthly net assets on
the next $150 million;  and,  0.15% on the value of the Fund's  average  monthly
assets over $400 million.  FAS has agreed to cap the Fund's total administration
costs at 0.30% (including administration,  co-administration, transfer agent and
custodian  fees),  and  therefore  waives a portion  of its fee should the total
monthly administration expenses exceed 0.30% on an annualized basis.

INVESTORS  BANK & TRUST  COMPANY.  Investors  Bank & Trust  Company  ("Investors
Bank"),  located at 200 Clarendon  Street,  Boston MA 02116 serves as the Fund's
co-administrator  and custodian of its assets.  As  co-administrator,  Investors
Bank provides  certain  services  including fund  accounting and  preparation of
materials  for Board  meetings.  Under an  administration  agreement and custody
agreement  between the Fund and Investors  Bank,  the Fund pays Investors Bank a
combined  monthly  fee  for  both   co-administrative   and  custodian  services
calculated  at an  annual  rate of 0.058%  of the  value of the  Fund's  average
monthly  net  assets up to $300  million  and  0.04% on the value of the  Fund's
average  monthly  net assets  over $300  million,  or a minimum  monthly  fee of
$10,500.  Presently,  because of the level of the  Fund's  average  monthly  net
assets, the Fund pays the minimum fee of $10,500 monthly. In addition, Investors
Bank  receives  certain  out-of-pocket  expenses,  transaction  fees and certain
charges for  securities  transactions.  All customary  fees of the custodian are
paid by the Fund.



                 COMPENSATION TO THE ADVISERS AND ADMINISTRATORS

Information  is provided in this  Statement of  Additional  Information  and the
Prospectus  concerning the Advisers and  Administrator and their agreements with
the Fund.  The amounts paid to such  persons  during the last three fiscal years
or, if  shorter,  the period  during  which the entity was  retained  to provide
services to the Fund are as follows:





Name of Entity                                                 Fees Paid by the Fund
                                                                                           
                                                               2002               2003              2004

Boulder Investment Advisers, LLC

Stewart Investment Advisers

Fund Administrative Services, LLC                              *                  *                 *

Investors Bank & Trust Company                                 --                 --                $_**



*Prior to February 1, 2004, from fees it received under the prior administrative
agreement  between FAS and the Fund, FAS was required to pay  substantially  all
fees  respecting  services  provided  to the  Fund  by  any  sub-administrators,
custodian or transfer agent. Under this arrangement, out of the funds identified
in the  Table  above,  FAS paid  such  outsourced  service  providers  $_______,
$_______ and $______ during fiscal year 2002, 2003 and 2004, respectively.  At a
regular  meeting of directors held on January 23, 2004, the Board approved a new
administrative agreement where by the Fund would separately pay FAS and all such
service providers.

** Investors Bank began providing administration services to the Fund on October
1, 2004.



        FACTORS CONSIDERED BY THE INDEPENDENT DIRECTORS IN APPROVING THE
                         INVESTMENT ADVISORY AGREEMENTS

The 1940 Act requires that a fund's investment  advisory  agreements be approved
annually by both the Board and a majority of the  Independent  Directors  voting
separately.  The  Independent  Directors have  determined  that the terms of the
Fund's  investment  advisory  agreements  are fair and  reasonable  and that the
contracts are in the Fund's best interest.  The  Independent  Directors  believe
that the  investment  advisory  agreements  will  enable  the Fund to enjoy high
quality investment advisory services at a cost they deem appropriate, reasonable
and in the  best  interests  of the Fund and its  shareholders.  At a  regularly
scheduled  meeting held on January 21, 2005, the Directors,  by a unanimous vote
(including a separate vote of the Independent  Directors),  approved the renewal
of the Advisory Agreements.

FACTORS  CONSIDERED.  Generally,  the Board  considered  a number of  factors in
renewing the Advisory Agreements including,  among other things, (i) the nature,
extent and quality of services to be furnished by the Advisers to the Fund; (ii)
the investment  performance of the Fund compared to relevant  market indices and
the  performance  of peer groups of  closed-end  investment  companies  pursuing
similar strategies;  (iii) the advisory fees and other expenses paid by the Fund
compared to those of similar funds managed by other  investment  advisers;  (iv)
the profitability to the Advisers of their investment advisory relationship with
the Fund;  (v) the extent to which  economies  of scale would be realized as the
Fund grows and whether fee levels  reflect any economies of scale;  (vi) support
of the  Advisers  by the Fund's  principal  shareholders;  (vii) the  historical
relationship  between  the Fund and the  Advisers,  and (viii) the  relationship
between the Advisers and its affiliated  service  provider,  FAS. The Board also
reviewed  the  ability of the  Advisers  to provide  investment  management  and
supervision  services  to the Fund,  including  the  background,  education  and
experience  of the key  portfolio  management  and  operational  personnel,  the
investment  philosophy and decision-making  process of those professionals,  and
the ethical standards maintained by the Advisers.

DELIBERATIVE  PROCESS.  To assist the Board in its  evaluation of the quality of
the Advisers'  services and the  reasonableness  of the Advisers' fees under the
Advisory  Agreements,  the Board received a memorandum  from  independent  legal
counsel to the Independent  Directors  discussing the factors generally regarded
as appropriate to consider in evaluating  investment  advisory  arrangements and
the duties of directors in approving such  arrangements.  In connection with its
evaluation,  the Board also requested, and received,  various materials relating
to the  Advisers'  investment  services  under the  Advisory  Agreements.  These
materials included a report prepared by Lipper,  Inc.  ("Lipper")  comparing the
Fund's performance, advisory fees and expenses to a group of funds determined to
be most  similar  to the Fund  (the  "Peer  Group")  and a broader  universe  of
relevant  funds (the  "Universe"),  in each case as  determined  by Lipper.  The
Lipper  report also included a  performance  comparison  for the Fund against an
appropriate  index. In addition,  the Board received  reports and  presentations
from the Advisers that described,  among other things,  the Advisers'  financial
condition,  profitability  from its  relationship  with the  Fund,  soft  dollar
commission  and  trade  allocation  policies,   organizational   structure,  and
compliance  policies  and  procedures.  The Board  also  considered  information
received from the Advisers throughout the year, including investment performance
and expense ratio reports for the Fund.

In advance of the January 21, 2005 meeting,  the  Independent  Directors  held a
special  telephonic  meeting  with  counsel  to the Fund and  independent  legal
counsel to the Independent  Directors.  The principal purpose of the meeting was
to discuss  the  renewal of the  Advisory  Agreements  and review the  materials
provided  to the Board by the  Advisers  in  connection  with the annual  review
process. As a result of these discussions,  the Independent  Directors requested
that the  Advisers  provide  supplemental  materials  to assist the Board in its
evaluation of the Advisory Agreements.  The Board held additional discussions at
the January 21, 2005 Board meeting,  which included a private  session among the
Independent  Directors and their independent legal counsel at which no employees
or representatives of the Advisers were present.



BOARD   CONSIDERATIONS.   The   information   below   summarizes   the   Board's
considerations  in connection with its approval of the Advisory  Agreements.  In
deciding to approve the Advisory Agreements, the Board did not identify a single
factor as  controlling  and this  summary  does not  describe all of the matters
considered.  However,  the  Board  concluded  that each of the  various  factors
referred to below favored such approval.

     Nature,  Extent and Quality of the  Services  Provided;  Ability to Provide
Services.  The  Board  received  and  considered  various  data and  information
regarding the nature, extent and quality of services provided to the Fund by the
Advisers under the Advisory  Agreements.  Each Adviser's most recent  investment
adviser  registration form on the Securities and Exchange  Commission's Form ADV
was provided to the Board,  as were the responses of the Advisers to information
requests  submitted to the Advisers by the Independent  Directors  through their
independent legal counsel. The Board reviewed and analyzed the materials,  which
included  information  about the  background,  education  and  experience of the
Advisers' key portfolio  management and operational  personnel and the amount of
attention devoted to the Fund by the Advisers' portfolio  management  personnel.
In this regard,  it was noted that the Advisers'  only clients are the Fund, one
other  registered  investment  company  (Boulder Total Return Fund,  Inc.) and a
charitable foundation affiliated with the Horejsi family. Accordingly, the Board
was  satisfied  that  the  Advisers'  investment  personnel,  including  Stewart
Horejsi, the Fund's principal portfolio manager, devote a significant portion of
their time and attention to the success of the Fund and its investment strategy.
The  Board  also  considered  the  Advisers'   recently  enhanced  policies  and
procedures for ensuring  compliance with applicable laws and regulations.  Based
on the above factors,  the Board concluded that it was generally  satisfied with
nature,  extent and quality of the investment  advisory services provided to the
Fund by the Advisers, and that the Advisers possessed the ability to continue to
provide these services to the Fund in the future.

     Investment Performance.  The Board considered the investment performance of
the Fund since January 2002,  when the Advisers  became the investment  managers
for the Fund, as compared to both relevant  indices and the  performance  of the
Fund's  peer group  universe.  The Board noted  favorably  that for the one- and
three-year  periods ending December 31, 2004, the Fund's  performance based upon
total return ranked in the second quintile of its Universe (i.e.,  the upper 40%
of the funds in the Universe),  and had  outperformed  the Standard & Poor's 500
index,  the  Fund's  primary  relevant  benchmark,  as  well  as the  Dow  Jones
Industrial  Average and the Nasdaq Composite,  the Fund's secondary  benchmarks.
The  Board   acknowledged   that  the  Universe   included  both  leveraged  and
non-leveraged closed-end funds to provide a more statistically significant group
for  comparison  purposes,  even though the Fund is leveraged  and comparing the
Fund only to Funds that use  leverage  may yield a different  result.  The Board
also noted that the investment  performance  for the Fund continued the superior
investment  performance  record achieved by Mr. Horejsi prior to his association
with the Fund in managing his family's extensive investment portfolio.  Based on
these  factors,  the  Board  concluded  that  the  overall  performance  results
supported the renewal of the Advisory Agreements.

     Costs of  Services  Provided  and  Profits  Realized  by the  Advisers.  In
evaluating the costs of the services  provided to the Fund by the Advisers,  the
Board  received  statistical  and other  information  regarding the Fund's total
expense  ratio  and  its  various  components,  including  management  fees  and
investment-related  expenses.  This  information  included a  comparison  of the
Fund's  various  expenses  to  the  Peer  Group  and  the  Universe.  The  Board
acknowledged that the level of fees charged by the Advisers is at the higher end
of the  spectrum of fees charged by similarly  situated  investment  advisers of
closed-end funds. The Fund's management fee expense ranked in the fifth quintile
of the nine funds  included in the Peer Group and in the fourth  quintile of the
Universe.  The Board noted that the Fund's  shareholders had removed most of the
Fund's investment  limitations,  resulting in a much broader (and more difficult
to  assess)  universe  of  investment  possibilities  for the  Fund  than  might
otherwise be the case for other  "sector" or "industry"  oriented  funds,  which
requires  a greater  degree  of  portfolio  management  skill on the part of the
Advisers. The Board also considered that the Advisers do not participate in soft
dollar or directed brokerage  transactions.  Instead, the Advisers bear the cost
of third party  research  utilized by the Advisers,  increasing  the cost to the
Advisers of providing investment  management services to the Fund and decreasing
the  Fund's  transaction  expenses.  It was also noted  that the  Advisers  have
historically  waived fees when the Fund held  significant  levels of un-invested
cash.

The Board also obtained detailed information regarding the overall profitability
of the Advisers and the combined  profitability  of the Advisers and FAS,  which
acts as co-administrator  for the Fund. The combined  profitability  information
was  obtained to assist the Board in  determining  the  overall  benefits to the
Advisers  from their  relationship  to the Fund.  Based on its  analysis of this
information,  the  Board  determined  that the  level of  profits  earned by the
Advisers from managing the Fund bear a reasonable  relationship  to the services
rendered.

Based on these  factors,  the Board  concluded  that the fee under the  Advisory
Agreements  was  reasonable  and fair in light of the nature and  quality of the
services provided by the Advisers.



     Economies of Scale. The Board considered  whether there have been economies
of scale  with  respect  to the  management  of the Fund,  whether  the Fund has
appropriately  benefited from any economies of scale, and whether the management
fee rate is  reasonable  in relation to the Fund's  assets and any  economies of
scale that may exist.  Based on the relatively small size of the Fund, the Board
determined  that no  meaningful  economies of scale would be realized  until the
Fund achieved  significantly  higher asset levels. The Board also noted that the
Advisers' internal costs of providing investment management services to the Fund
had increased, in part due to administrative burdens and expenses resulting from
recent  legislative and regulatory  actions.  Based on these factors,  the Board
concluded that the absence of  breakpoints  in the Fund's  current  advisory fee
schedule was acceptable.

     Shareholder  Support and Historical  Relationship  with the Fund. The Board
placed  considerable  weight on the views of the  Fund's  largest  shareholders,
which are affiliated with Mr. Horejsi and the Advisers. As of December 31, 2004,
these  shareholders  held  approximately  21% of the Fund's  outstanding  common
shares,  representing  approximately $17 million of the Fund's net assets of $90
million,  excluding  leverage,  on that  date.  The Board  understands  from Mr.
Horejsi that these  shareholders  are supportive of the Advisers and the renewal
of the Advisory Agreements.  The Board also noted that the Fund had not received
any negative feedback from other Fund shareholders with respect to the levels of
investment management fees and expenses experienced by the Fund.

APPROVAL.  The Board based its  decision to approve the renewal of the  Advisory
Agreements  on a  careful  analysis,  in  consultation  with  Fund  counsel  and
independent counsel for the Independent  Directors,  of these and other factors.
In approving the Advisory Agreements,  the Board concluded that the terms of the
Fund's investment  advisory  agreements are reasonable and fair and that renewal
of the  Advisory  Agreements  is in the  best  interests  of the  Fund  and  its
shareholders.



                            DURATION AND TERMINATION

The terms of the  Advisory  Agreements  were  approved by the Board at a regular
meeting of the Board held on  January  21,  2005,  including  a majority  of the
Directors  who are not parties to the agreement or  "interested  persons" of any
such party (as such term is defined in the 1940 Act).

Each Advisory  Agreement  will continue in effect  without a term so long as its
continuation is specifically  approved at least annually by both (i) the vote of
a majority  of the Board or the vote of a  majority  of the  outstanding  voting
securities of the Fund (as such term is defined in the 1940 Act) and (ii) by the
vote  of a  majority  of the  directors  who are not  parties  to such  Advisory
Agreement or interested persons (as such term is defined in the 1940 Act) of any
such party, cast in person at a meeting called for the purpose of voting on such
approval.  Any of the Advisory  Agreements  may be  terminated as a whole at any
time by the  Fund,  without  the  payment  of any  penalty,  upon  the vote of a
majority of the Board or a majority of the outstanding  voting securities of the
Fund or by the Advisers on 60 days' written notice by either party to the other.
Except as otherwise provided by order of the SEC or any rule or provision of the
1940 Act, each of the Advisory  Agreements will terminate  automatically  in the
event of its  assignment  (as such term is defined in the 1940 Act and the rules
thereunder).


                         POTENTIAL CONFLICTS OF INTEREST

The Fund is managed by the Advisers,  who also serve as  investment  advisers to
another  closed-end  investment  company  and at least  one other  account  with
investment  objectives  identical or similar to those of the Fund.  Mr.  Horejsi
also manages a substantial  portfolio of securities for the Horejsi  Affiliates.
Securities  frequently  meet the investment  objectives of the Fund, the Horejsi
Affiliates  and such other funds and  accounts.  In such cases,  the decision to
recommend  a purchase to one fund or account  rather than  another is based on a
number of  factors.  The  determining  factors  in most  cases are the amount of
securities of the issuer then outstanding, the value of those securities and the
market for them.  Other  factors  considered in the  investment  recommendations
include  other  investments  that  each  fund  or  account  presently  has  in a
particular  industry and the  availability  of investment  funds in each fund or
account. It is possible that at times identical  securities will be held by more
than one fund and/or account. However,  positions in the same issue may vary and
the length of time that any fund or account may choose to hold its investment in
the same issue may likewise vary.

To the  extent  that  more  than one of the  funds or  accounts  managed  by the
Advisers seeks to acquire the same security at about the same time, the Fund may
not be able to acquire as large a position in such  security as it desires or it
may have to pay a higher price for the  security.  However,  with respect to the
Horejsi  Affiliates and the other private account  managed by the Advisers,  the
Horejsi  Affiliates  and such other private  account have consented to allow the
funds managed by the Adviser to complete  their  transactions  in any particular
security  before the Horejsi  Affiliates or such other  private  account will be
allowed to  transact  in such  security,  thus  giving the funds  managed by the
Advisers the first opportunity to trade in a particular  security.  The Fund may
not be able to  obtain  as large an  execution  of an order to sell or as high a
price for any particular  portfolio  security if the Advisers  decide to sell on
behalf of another  account the same portfolio  security at the same time. On the
other hand, if the same  securities  are bought or sold at the same time by more
than one fund or account,  the resulting  participation  in volume  transactions
could produce better executions for the Fund. In the event more than one account
purchases or sells the same  security on a given date,  the  purchases and sales
will normally be made as nearly as practicable on a pro rata basis in proportion
to the amounts  desired to be  purchased or sold by each  account.  Although the
other fund  managed  by the  Advisers  may have the same or  similar  investment
objectives and policies as the Fund, its portfolio does not generally consist of
the same  investments  as the Fund and its  performance  results  are  likely to
differ from those of the Fund.



                                  PROXY VOTING

The Board has  delegated  to BIA the  authority to vote proxies on behalf of the
Fund.  The Board has approved the proxy voting  guidelines  of the Fund and will
review the guidelines and suggest changes they deem advisable.  A summary of the
Fund's and BIA's proxy  voting  policies  and  procedures  are  attached to this
Statement  of  Additional  Information  as  Appendices  B and  C,  respectively.
Information   regarding  how  the  Fund  voted  proxies  relating  to  portfolio
securities  during the most recent  12-month  period  ended June 30 is available
without charge,  upon request, by calling  1-800-_______,  and on the Securities
and Exchange Commission's website, at www.sec.gov.


                                 CODE OF ETHICS

The Fund and the Advisers  have adopted a joint code of ethics  pursuant to Rule
17j-1  under  the  1940  Act  that is  applicable  to  officers,  directors  and
designated  employees of the Fund and the Advisers,  as applicable (the "Code of
Ethics").  The Code of Ethics  permits  such  personnel  to  engage in  personal
securities transactions for their own account,  including securities that may be
purchased  or held by the Fund,  and is designed to prescribe  means  reasonably
necessary to prevent  conflicts  of interest  from  arising in  connection  with
personal  securities  transactions.  The Code of Ethics is on file with,  and is
available from, the Securities and Exchange  Commission's  Public Reference Room
in Washington,  D.C.  Information on the operation of the Public  Reference Room
may be obtained  by calling  the  Commission  at  1-(202)-942-8090.  The Code of
Ethics is also  available  on the EDGAR  database on the  Commission's  internet
website at  http://www.sec.gov.  Copies of the Code of Ethics  may be  obtained,
after paying a duplicating  fee, by electronic  request to the following  e-mail
address:  publicinfo@sec.gov,  or by writing the  Commission's  Public Reference
Section, Washington, D.C. 20549-0102.


        PORTFOLIO TRANSACTIONS, BROKERAGE ALLOCATION AND OTHER PRACTICES

All orders for the purchase or sale of portfolio securities are placed on behalf
of the Fund by the  Advisers  pursuant to  authority  contained  in the Advisory
Agreements. The Advisers seek best execution in selecting brokers and dealers to
effect  the  Fund's  transactions  and  negotiating  prices  and  any  brokerage
commissions.  The Fund may purchase  certain money market  instruments  directly
from an issuer,  in which case no commissions or discounts are paid. No separate
brokerage commission is typically paid on bond transactions, which are typically
executed on a principal basis, in contrast to common stock  transactions,  where
brokerage commissions are the norm. The Fund paid $______,  $______, and $______
in brokerage  commissions for the fiscal years ended November 30, 2002, 2003 and
2004, respectively.

The Advisers are  responsible for effecting the Fund's  securities  transactions
and will do so in a manner it deems fair and reasonable to  shareholders  of the
Fund and not according to any formula.  The Advisers' primary  considerations in
selecting  the manner of  executing a  securities  transaction  for the Fund are
prompt execution of orders, the size and breadth of the market for the security,
the reliability,  integrity, financial condition and execution capability of the
firm,  the  difficulty  in  executing  the order,  and the best net  price.  The
Advisers have established procedures whereby it monitors, periodically evaluates
and reports to the Board the cost and quality of execution  services provided by
brokers  selected by the  Advisers  to execute  transactions  for the Fund.  The
evaluation is made  primarily  based on a comparison of  commissions  charged by
other broker with similar capabilities and trade execution.

There are many  instances  when, in the judgment of the Advisers,  more than one
firm can offer  comparable  execution  services.  In selecting among such firms,
consideration  may be given to those  firms  which  supply  research  and  other
services in addition to execution services, although the Fund does not typically
rely on such research. The Advisers have adopted a policy against using any kind
of soft dollar  arrangements.  The Advisers utilize  purchased  research only in
regards to the REIT  industry,  but do not use soft dollars as a means of paying
for such research.  Rather,  the Advisers have arranged that a higher commission
would be paid only with regard to REIT trades that  involve  REITs  covered by a
particular  research  company,  in which  case the Fund pays only the  amount of
commission  typically  paid to other brokers and the Advisers pay any portion of
such commission that exceeds this typical brokerage commission.  This policy has
been  disclosed  to and  approved  by the Board.  During  the fiscal  year ended
November 30, 2004,  the  Advisers  directed  $10,690,854  in  transactions  with
related  commissions  of $14,206 to Green  Street  Advisers for the REIT related
research  described  above.  Of the  $14,206  in  commissions  related  to these
transactions, the Advisers reimbursed the Fund for $7,103, the portion which the
Advisers  deemed to be in excess of the  commissions  the Fund would likely have
paid to a broker which provided best execution.



Although the Advisory  Agreements contain no restrictions on portfolio turnover,
it is not the Fund's  policy to engage in  transactions  with the  objective  of
seeking profits from short-term  trading.  The annual portfolio turnover rate of
the Fund is generally less than 50%,  excluding  securities having a maturity of
one year or less.  Because  it is  difficult  to  accurately  predict  portfolio
turnover  rates,  actual  turnover  may be  higher or  lower.  Higher  portfolio
turnover results in increased Fund expenses,  including  brokerage  commissions,
dealer mark-ups and other transaction costs on the sale of securities and on the
reinvestment in other  securities.  For the fiscal years ended November 30, 2003
and November 30, 2004,  the Fund's  portfolio  turnover  rates were 40% and 33%,
respectively.


       ADDITIONAL INFORMATION CONCERNING THE AUCTIONS FOR PREFERRED SHARES

GENERAL.  The Depository  Trust Company ("DTC" or the  "Securities  Depository")
will act as the Securities  Depository with respect to the Preferred Shares. One
certificate  for all of the  Preferred  Shares will be registered in the name of
Cede & Co., as nominee of the Securities Depository.  Such certificate will bear
a legend to the effect that it is issued subject to the  provisions  restricting
transfers  of  shares  of  the  Preferred   Shares  contained  in  the  Articles
Supplementary  Creating and Fixing the Rights of Auction Market  Preferred Stock
(the "Articles  Supplementary") which is attached hereto as Appendix D. Prior to
the commencement of the right of holders of the Preferred Shares to elect two of
the Fund's  Directors,  as described under  "Description of Preferred  Shares --
Voting Rights" in the Prospectus, Cede & Co. will be the holder of record of the
Preferred  Shares  and owners of such  shares  will not be  entitled  to receive
certificates  representing their ownership  interest in such shares.  DTC, a New
York-chartered  limited  purpose  trust  company,   performs  services  for  its
participants, some of whom (and/or their representatives) own DTC. DTC maintains
lists of its participants and will maintain the positions (ownership  interests)
held by each such  participant  in the  Preferred  Shares,  whether  for its own
account or as a nominee for another person.

THE AUCTION AGENT.  Deutsche Bank Trust Company  Americas (the "Auction  Agent")
will act as agent for the Fund in connection  with the auctions of the Preferred
Shares  (the  "Auctions").  In  the  absence  of  willful  misconduct  or  gross
negligence  on its part,  the  Auction  Agent  will not be liable for any action
taken,  suffered,  or  omitted  or for any error of  judgment  made by it in the
performance  of its duties under the auction agency  agreement  between the Fund
and the Auction  Agent and will not be liable for any error of judgment  made in
good faith unless the Auction Agent was grossly  negligent in  ascertaining  the
pertinent facts.

The Auction Agent may  conclusively  rely upon, as evidence of the identities of
the holders of the Preferred  Shares,  the Auction Agent's  registry of holders,
and the results of auctions and notices from any broker-dealer ("Broker-Dealer")
that has entered  into an  agreement  with the Auction  Agent (a  "Broker-Dealer
Agreement")  (or other  person,  if  permitted  by the  Fund)  with  respect  to
transfers  described under "The Auction - Secondary Market Trading and Transfers
of Preferred  Shares" in the  Prospectus  and notices from the Fund. The Auction
Agent is not  required  to accept any such  notice  for an auction  unless it is
received by the Auction Agent by 3:30 p.m.,  New York City time, on the business
day preceding such Auction.

The Auction Agent may terminate its auction agency  agreement with the Fund upon
notice to the Fund on a date no earlier than 60 days after such  notice.  If the
Auction Agent should resign, the Fund will use its best efforts to enter into an
agreement with a successor auction agent containing substantially the same terms
and conditions as the auction agency agreement.  The Fund may remove the Auction
Agent  provided that prior to such removal the Fund shall have entered into such
an agreement with a successor auction agent.

BROKER-DEALERS.  The Auction Agent, after each Auction for the Preferred Shares,
will pay to each  Broker-Dealer,  from  funds  provided  by the Fund,  a service
charge at the  annual  rate:  (i) in the case of any  Auction  date  immediately
preceding a dividend  period other than a special  dividend  period of less than
one year,  the product of (A) a fraction the numerator of which is the number of
days in such dividend period  (calculated by counting the date of original issue
of such shares to but excluding  the next  succeeding  dividend  payment date of
such shares) and the denominator of which is 360, times (B) 1/4 of 1%, times (C)
$25,000  times (D) the sum of the  aggregate  number  of  shares of  outstanding
Preferred  Shares for which the Auction is conducted and (ii) in the case of any
special  dividend  period of one year or more,  the amount  determined by mutual
consent  of the Fund  and any  such  Broker-Dealers  and  shall be based  upon a
selling  concession  that would be  applicable  to an  underwriting  of fixed or
variable rate  Preferred  Shares with a similar final  maturity or variable rate
dividend period,  respectively,  at the commencement of the dividend period with
respect  to such  Auction.  For the  purposes  of the  preceding  sentence,  the
Preferred  Shares will be placed by a Broker-Dealer  if such shares were (a) the
subject of hold orders deemed to have been submitted to the Auction Agent by the
Broker-Dealer and were acquired by such  Broker-Dealer for its customers who are
beneficial owners or (b) the subject of an order submitted by such Broker-Dealer
that is (i) a submitted bid of an existing  holder that resulted in the existing
holder  continuing  to hold such  shares as a result  of the  Auction  or (ii) a
submitted  bid of a potential  bidder  that  resulted  in the  potential  holder
purchasing such shares as a result of the Auction or (iii) a valid hold order.



The Fund may request the Auction  Agent to terminate  one or more  Broker-Dealer
agreements at any time, provided that at least one Broker-Dealer agreement is in
effect after such termination.

Each  Broker-Dealer  Agreement  provides  that a  Broker-Dealer  (other  than an
affiliate of the Fund) may submit orders in Auctions for its own account, unless
the Fund  notifies  all  Broker-Dealers  that they may no longer do so, in which
case Broker-Dealers may continue to submit hold orders and sell orders for their
own  accounts.  Any  Broker-Dealer  that is an  affiliate of the Fund may submit
orders in Auctions,  but only if such orders are not for its own  account.  If a
Broker-Dealer submits an order for its own account in any Auction, it might have
an advantage  over other bidders  because it would have  knowledge of all orders
submitted by it in that Auction;  such  Broker-Dealer,  however,  would not have
knowledge of orders submitted by other Broker-Dealers in that Auction.


                            RATING AGENCY GUIDELINES

The descriptions of Fitch, Inc.  ("Fitch") and Moody's Investors  Service,  Inc.
("Moody's")  rating guidelines  ("Rating Agency  Guidelines")  contained in this
Statement  of  Additional  Information  do not  purport to be  complete  and are
subject to and  qualified  in their  entireties  by  reference  to the  Articles
Supplementary,  a copy of which is attached as Appendix C to this  Statement  of
Additional  Information.  A copy of the  Articles  Supplementary  is filed as an
exhibit to the registration statement of which the prospectus and this Statement
of Additional  Information  are a part and may be inspected,  and copies thereof
may be obtained, as described in the prospectus.

The composition of the Fund's portfolio reflects the Rating Agency Guidelines in
connection  with the Fund's  receipt of a rating of "Aaa" and "AAA" from Moody's
and  Fitch,  respectively,   for  the  Preferred  Shares.  These  Rating  Agency
Guidelines  relate,  among other things,  to credit quality  characteristics  of
issuers and  diversification  requirements  and specify various discount factors
for  different  types of securities  (with the level of discount  greater as the
rating of a security becomes lower). Under the Rating Agency Guidelines, certain
types of securities in which the Fund may otherwise  invest  consistent with its
investment  strategy are not eligible for  inclusion in the  calculation  of the
discounted value of the Fund's portfolio. Such instruments include, for example,
private  placements  (other than Rule 144A  securities) and other securities not
within the Rating Agency Guidelines. Accordingly, although the Fund reserves the
right to invest in such securities to the extent set forth herein, they have not
and it is anticipated that they will not constitute a significant portion of the
Fund's portfolio.

The Rating Agency  Guidelines  require that the Fund  maintain  assets having an
aggregate  discounted  value,  determined  on the  basis  of the  Rating  Agency
Guidelines,  greater than the aggregate liquidation  preference of the Preferred
Shares plus specified liabilities,  payment obligations and other amounts, as of
periodic  valuation dates. The Rating Agency Guidelines also require the Fund to
maintain  asset  coverage  required  by the 1940 Act as a  condition  to  paying
dividends or other  distributions  on the Fund's  common  shares.  The effect of
compliance with the Rating Agency  Guidelines may be to cause the Fund to invest
in higher quality assets and/or to maintain relatively  substantial  balances of
highly  liquid  assets  or to  restrict  the  Fund's  ability  to  make  certain
investments  that  would  otherwise  be  deemed  potentially  desirable  by  the
Advisers.  The Rating Agency  Guidelines are subject to change from time to time
with the consent of the relevant  rating  agency and would not apply if the Fund
in the  future  elected  not to use  financial  leverage  consisting  of  senior
securities  rated  by  one or  more  rating  agencies,  although  other  similar
arrangements  might apply with respect to other senior  securities that the Fund
may issue.

The Fund intends to maintain,  at specified  times,  a discounted  value for its
portfolio at least equal to the amount specified by each rating agency.  Moody's
and Fitch have each established  separate guidelines for determining  discounted
value.  To the extent any  particular  portfolio  holding  does not  satisfy the
applicable Rating Agency's Guidelines,  all or a portion of such holding's value
will not be included in the calculation of discounted  value (as defined by such
rating  agency).  The Rating Agency  Guidelines do not impose any limitations on
the  percentage  of Fund's  assets that may be invested in holdings not eligible
for  inclusion  in  the  calculation  of the  discounted  value  of  the  Fund's
portfolio.  The amount of such assets  included in the Fund's  portfolio  at any
time  may  vary   depending   upon  the   rating,   diversification   and  other
characteristics  of the Fund's  assets that are  eligible  for  inclusion in the
discounted value of the Fund's portfolio under the Rating Agency Guidelines. For
a more detailed  description of the Rating Agency  Guidelines,  see the Articles
Supplementary.



                              REPURCHASE OF SHARES

The  Fund  is  a  closed-end   investment   company  and  therefore  its  common
shareholders  do not have the right to cause the Fund to  redeem  their  shares.
Instead,  the Fund's common shares trade in the open market at a price that is a
function of several  factors,  including  net asset value,  dividend  stability,
relative demand for and supply of such shares in the market,  general market and
economic  conditions,  dividend  stability,  dividend  levels (which are in turn
affected  by  expenses),  and other  factors.  Because  shares  of a  closed-end
investment  company may frequently trade at prices lower than net asset value (a
"Discount"),  the Board may  consider  actions  that might be taken to reduce or
eliminate any material  Discount in respect of common shares,  which may include
the repurchase of such shares in the open market or in private transactions, the
making of a tender offer for such shares at net asset value,  or the  conversion
of the Fund to an open-end investment company.  The Board may not decide to take
any of  these  actions.  In  addition,  there  can be no  assurance  that  share
repurchases or tender offers, if undertaken, will reduce any Discount.

Once the Fund issues the  Preferred  Shares,  the Fund's  ability to  repurchase
shares of, or tender for, its common stock may be limited by the asset  coverage
requirements  of the 1940  Act and by  asset  coverage  and  other  requirements
imposed by various  rating  agencies.  No assurance  can be given that the Board
will decide to undertake  share  repurchases or tenders or, if undertaken,  that
repurchases  and/or tender offers will result in the Fund's common stock trading
at a price  that is close to,  equal to or above net asset  value.  The Fund may
borrow to finance repurchases and/or tender offers. Any tender offer made by the
Fund for its shares may be at a price  equal to or less than the net asset value
of such shares.  Any service fees incurred in  connection  with any tender offer
made by the Fund  will be borne by the  Fund  and  will not  reduce  the  stated
consideration to be paid to tendering shareholders.

Subject  to its  investment  limitations,  the Fund may  borrow to  finance  the
repurchase  of  common  shares  or to  make  a  tender  offer.  Interest  on any
borrowings to finance share repurchase  transactions or the accumulation of cash
by the Fund in  anticipation  of share  repurchases  or tenders  will reduce the
Fund's net income. Any share repurchase, tender offer or borrowing that might be
approved by the Board would have to comply  with the  Exchange  Act and the 1940
Act and the rules and regulations under each of those Acts.

Although the  decision to take action in response to a Discount  will be made by
the Board at the time it considers such issue, it is the Board's present policy,
which may be changed by the Board, not to authorize repurchases of common shares
or a tender  offer for such  shares if (1) such  transactions,  if  consummated,
would (a) result in the  delisting  of the common  shares from the NYSE,  or (b)
impair the Fund's status as a regulated investment company under the Code (which
would make the Fund a taxable  entity,  causing the Fund's income to be taxed at
the  corporate  level in addition to the  taxation of  shareholders  who receive
dividends from the Fund) or as a registered  closed-end investment company under
the 1940 Act; (2) the Fund would not be able to liquidate  portfolio  securities
in an orderly manner and  consistent  with the Fund's  investment  objective and
policies  in order  to  repurchase  shares;  or (3)  there  is,  in the  Board's
judgment,  any (a) material legal action or proceeding  instituted or threatened
challenging such transactions or otherwise  materially  adversely  affecting the
Fund, (b) general  suspension of or limitation on prices for trading  securities
on the  NYSE,  (c)  declaration  of a banking  moratorium  by  Federal  or state
authorities  or any  suspension  of  payment  by U.S.  banks in  which  the Fund
invests,  (d)  material  limitation  affecting  the Fund or the  issuers  of its
portfolio  securities by Federal or state authorities on the extension of credit
by lending institutions or on the exchange of foreign currency, (e) commencement
of war, armed  hostilities or other  international or national calamity directly
or indirectly involving the United States, or (f) other event or condition which
would have a material  adverse effect  (including any adverse tax effect) on the
Fund or its shareholders if shares were repurchased. The Board may in the future
modify these conditions in light of experience.

The  repurchase by the Fund of its common shares at prices below net asset value
will result in an  increase  in the net asset value of those  shares that remain
outstanding.  However,  there can be no  assurance  that  share  repurchases  or
tenders at or below net asset  value will  result in the  Fund's  common  shares
trading at a price equal to their net asset value.  Nevertheless,  the fact that
the Fund's shares may be the subject of repurchase or tender offers at net asset
value  from  time to time,  or that the Fund  may be  converted  to an  open-end
company,  may be helpful in reducing  any spread  between  market  price and net
asset value that might otherwise exist.

In  addition,  a purchase  by the Fund of its common  shares will  decrease  the
Fund's total assets, which would likely have the effect of increasing the Fund's
expense  ratio.  Any  purchase  by the Fund of its common  shares at a time when
preferred  shares are outstanding  will increase the leverage  applicable to the
outstanding  common shares then remaining and decrease the asset coverage of the
preferred shares.

Before deciding  whether to take any action if the common shares trade below net
asset value, the Board would likely consider all relevant factors, including the
extent and duration of the Discount, the liquidity of the Fund's portfolio,  the
impact of any  action  that might be taken on the Fund or its  shareholders  and
market considerations.  Based on these considerations, even if the Fund's shares
should trade at a Discount, the Board may determine that, in the interest of the
Fund and its shareholders, no action should be taken.



                           FEDERAL INCOME TAX MATTERS

The  following  is a summary  discussion  of  certain  U.S.  federal  income tax
consequences  that may be  relevant  to a  shareholder  acquiring,  holding  and
disposing of Preferred  Shares of the Fund. This discussion  addresses only U.S.
federal income tax  consequences to U.S.  shareholders  who hold their shares as
capital  assets  and  does  not  address  all of the  U.S.  federal  income  tax
consequences  that may be relevant to particular  shareholders in light of their
individual  circumstances.  This  discussion  also  does  not  address  the  tax
consequences  to  shareholders  that are  subject to special  rules,  including,
without  limitation,  banks and  financial  institutions,  insurance  companies,
dealers in securities or foreign currencies, foreign shareholders, tax-exempt or
tax-deferred  plans,   accounts,   or  entities,  or  investors  who  engage  in
constructive sale or conversion  transactions.  In addition, the discussion does
not address state,  local or foreign tax  consequences,  and it does not address
any tax  consequences  other  than U.S.  federal  income tax  consequences.  The
discussion  reflects  applicable tax laws of the United States as of the date of
this  Statement  of  Additional  Information,  which tax laws may be  changed or
subject to new  interpretations by the courts,  Treasury or the Internal Revenue
Service  (the  "IRS")  retroactively  or  prospectively.  No  attempt is made to
present a detailed explanation of all U.S. federal income tax concerns affecting
the Fund or its  shareholders,  and the  discussion  set forth  herein  does not
constitute tax advice.  Investors are urged to consult their own tax advisers to
determine  the  specific  tax  consequences  to them of  investing  in the Fund,
including the applicable  federal,  state, local and foreign tax consequences to
them and the effect of possible changes in tax laws.

As required by U.S. Treasury Regulations governing tax practice,  you are hereby
advised that any written tax advice contained herein was not written or intended
to be used (and  cannot be used) by any  taxpayer  for the  purpose of  avoiding
penalties that may be imposed under the Code.

The  advice  was  prepared  to  support  the   promotion  or  marketing  of  the
transactions or matters addressed by the written advice.

Any person  reviewing this discussion  should seek advice based on such person's
particular circumstances from an independent tax adviser.

The Fund has  qualified  and  elected  to be treated  each year as a  "regulated
investment company" under Subchapter M of the Code and to comply with applicable
distribution  requirements so that it generally will not pay U.S. federal income
tax on  income  of  the  Fund,  including  net  capital  gains,  distributed  to
shareholders.  In order to  qualify  as a  regulated  investment  company  under
Subchapter M of the Code, which qualification this discussion assumes,  the Fund
must,  among  other  things,  derive at least 90% of its gross  income  for each
taxable year from  dividends,  interest,  payments  with  respect to  securities
loans, gains from the sale or other disposition of stock,  securities or foreign
currencies,  or other income (including gains from options,  futures and forward
contracts)  derived  with  respect to its  business of  investing in such stock,
securities or currencies (the "90% income test").  In addition to satisfying the
requirements  described  above,  the Fund must satisfy an asset  diversification
test in order to qualify as a regulated investment company.  Under this test, at
close of each quarter of the Fund's  taxable  year, at least 50% of the value of
the Fund's assets must consist of cash and cash items  (including  receivables),
U.S. Government securities,  securities of other regulated investment companies,
and  securities  of other  issuers (as to which the Fund must not have  invested
more than 5% of the value of the Fund's  total assets in  securities  of any one
such  issuer  and as to which  the Fund  must not have held more than 10% of the
outstanding  voting securities of any one such issuer),  and no more than 25% of
the value of its total assets may be invested in the securities (other than U.S.
Government securities and securities of other regulated investment companies) of
any one issuer,  or of two or more issuers which the Fund controls and which are
engaged in the same or similar or related trades or businesses.

The American Jobs Creation Act of 2004 (the "2004 Tax Act"), which the President
recently  signed  into  law,  provides  that for  taxable  years of a  regulated
investment  company beginning after October 22, 2004, net income derived from an
interest in a "qualified  publicly traded  partnership," as defined in the Code,
will be treated as  qualifying  income for purposes of the 90% income test,  and
for the  purposes  of the  diversification  requirements  described  above,  the
outstanding  voting securities of any issuer includes the equity securities of a
qualified  publicly  traded  partnership  and no more than 25% of the value of a
regulated investment company's total assets may be invested in the securities of
one or more qualified publicly traded  partnerships.  In addition,  the separate
treatment for publicly traded  partnerships  under the passive loss rules of the
Code  applies  to a  regulated  investment  company  holding  an  interest  in a
qualified  publicly traded  partnership,  with respect to items  attributable to
such interest.

If the Fund  qualifies as a regulated  investment  company and, for each taxable
year, it distributes to its shareholders an amount equal to or exceeding the sum
of (i) 90% of its "investment company taxable income" as that term is defined in
the Code (which includes, among other things,  dividends,  taxable interest, and
the  excess of any net  short-term  capital  gains  over net  long-term  capital
losses, as reduced by certain deductible expenses) and (ii) 90% of the excess of
its gross tax-exempt interest, if any, over certain disallowed  deductions,  the
Fund generally  will not be subject to U.S.  federal income tax on any income of
the Fund, including "net capital gain" (the excess of net long-term capital gain
over net short-term capital loss), distributed to shareholders.  However, if the
Fund has met such  distribution  requirements but chooses not to distribute some
portion  of its  investment  company  taxable  income or net  capital  gain,  it
generally will be subject to U.S. federal income tax at regular  corporate rates
on the amount retained.  The Fund intends to distribute at least annually all or
substantially  all of its  investment  company  taxable  income,  net tax-exempt
interest, and net capital gain. If for any taxable year the Fund did not qualify
as a regulated  investment company, it would be treated as a corporation subject
to U.S.  federal  income tax and all  distributions  out of earnings and profits
would be taxed to shareholders as ordinary income.  In addition,  the Fund could
be required to  recognize  unrealized  gains,  pay taxes and make  distributions
(which could be subject to interest charges) before  requalifying as a regulated
investment company.



Under the Code,  the Fund will be subject  to a  nondeductible  4% U.S.  federal
excise tax on a portion of its undistributed taxable ordinary income and capital
gains if it fails to meet certain distribution requirements with respect to each
calendar  year.  The Fund intends to make  distributions  in a timely manner and
accordingly  does not expect to be subject to the excise tax,  but as  described
below,  there  can  be no  assurance  that  the  Fund's  distributions  will  be
sufficient to avoid entirely this tax.

Based in part on the lack of any  present  intention  on the part of the Fund to
redeem or purchase  the  Preferred  Shares at any time in the  future,  the Fund
intends to take the position that under  present law the  Preferred  Shares will
constitute  stock of the Fund and  distributions  with respect to the  Preferred
Shares (other than  distributions in redemption of the Preferred Shares that are
treated as exchanges under Section 302(b) of the Code) will constitute dividends
to the  extent of the Fund's  current or  accumulated  earnings  and  profits as
calculated for U.S.  federal income tax purposes.  This view relies in part on a
published  ruling of the IRS stating that certain  preferred  stock,  similar in
many  material  respects  to the  Preferred  Shares,  represents  equity.  It is
possible,  however,  that the IRS might take a contrary position asserting,  for
example, that the Preferred Shares constitute debt of the Fund. If this position
were upheld,  the discussion of the treatment of  distributions  below would not
apply.  Instead  distributions  by the Fund to holders of Preferred Shares would
constitute interest, whether or not such distributions exceeded the earnings and
profits of the Fund, would be included in the income of the recipient, and would
be taxed as ordinary income.

In  general,  assuming  that the  Fund  has  sufficient  earnings  and  profits,
dividends from investment  company taxable income are taxable as ordinary income
and distributions  from net capital gain, if any, that are designated as capital
gain  dividends are taxable as long-term  capital gains for U.S.  federal income
tax  purposes  without  regard to the  length of time the  shareholder  has held
shares of the Fund. Since the Fund's income is derived  primarily from interest,
dividends of the Fund from its investment  company taxable income generally will
not constitute  "qualified  dividend income" for federal income tax purposes and
thus will not be eligible for the favorable  federal  long-term capital gain tax
rates on qualified  dividend income.  In addition,  the Fund's dividends are not
expected to qualify for any dividends-received deduction that might otherwise be
available for certain dividends  received by shareholders that are corporations.
Capital  gain  dividends  distributed  by the  Fund to  individual  shareholders
generally  will  qualify for the maximum 15% U.S.  federal tax rate on long-term
capital  gains.  Under  current  law,  the maximum 15% U.S.  federal tax rate on
qualified  dividend  income and  long-term  capital gains will cease to apply to
taxable years beginning after December 31, 2008.

Distributions  by the Fund in  excess  of the  Fund's  current  and  accumulated
earnings  and  profits  will be  treated as a return of capital to the extent of
(and in  reduction  of) the  shareholder's  tax basis in its shares and any such
amount in excess of that  basis will be treated as gain from the sale of shares,
as discussed below. The U.S. federal income tax status of all distributions will
be reported to shareholders  annually.  If the Fund retains any net capital gain
for a taxable year, the Fund may designate the retained amount as  undistributed
capital gains in a notice to shareholders who, if subject to U.S. federal income
tax on long-term  capital  gains,  (i) will be required to include in income for
U.S. federal income tax purposes, as long-term capital gain, their proportionate
shares of such  undistributed  amount, and (ii) will be entitled to credit their
proportionate  shares  of the tax paid by the Fund on the  undistributed  amount
against their U.S. federal income tax liabilities,  if any, and to claim refunds
to the extent the credit exceeds such liabilities.

Although  dividends  generally  will be treated as  distributed  when paid,  any
dividend  declared  by the  Fund as of a record  date in  October,  November  or
December and paid during the following  January will be treated for U.S. federal
income tax purposes as received by  shareholders  on December 31 of the calendar
year in which it is declared.  In addition,  certain  other  distributions  made
after the close of a taxable year of the Fund may be "spilled  back" and treated
as paid by the Fund  (except  for  purposes  of the 4% excise  tax)  during such
taxable year.  In such case,  shareholders  generally  will be treated as having
received  such  dividends  in the taxable year in which the  distributions  were
actually made.

If the Fund invests in certain pay-in-kind  securities,  zero coupon securities,
deferred interest securities or, in general,  any other securities with original
issue  discount  (or with market  discount if the Fund elects to include  market
discount in income  currently),  the Fund  generally  must accrue income on such
investments for each taxable year,  which generally will be prior to the receipt
of the corresponding cash payments.  However, the Fund must distribute, at least
annually,  all or substantially all of its investment company taxable income and
net tax-exempt  interest,  including such accrued  income,  to  shareholders  to
qualify as a regulated  investment company under the Code and avoid U.S. federal
income  and  excise  taxes.  Therefore,  the  Fund may  have to  dispose  of its
portfolio  securities under  disadvantageous  circumstances to generate cash, or
may have to borrow the cash, to satisfy distribution requirements.



The Fund may invest  significantly  in debt  obligations  that are in the lowest
rating  categories or are unrated,  including  debt  obligations  of issuers not
currently paying interest or who are in default. Investments in debt obligations
that are at risk of or in default  present  special tax issues for the Fund. Tax
rules are not  entirely  clear  about  issues such as when the Fund may cease to
accrue interest,  original issue discount or market  discount,  when and to what
extent  deductions  may be taken  for bad  debts or  worthless  securities,  how
payments  received  on  obligations  in  default  should  be  allocated  between
principal  and income and whether  exchanges  of debt  obligations  in a workout
context are taxable.  These and other  issues will be addressed by the Fund,  in
the event it  invests  in such  securities,  in order to seek to ensure  that it
distributes  sufficient income to preserve its status as a regulated  investment
company and does not become subject to U.S. federal income or excise tax.

If the Fund utilizes  leverage through  borrowing or issuing preferred shares, a
failure by the Fund to meet the asset coverage  requirements imposed by the 1940
Act or by any rating  organization  that has rated such leverage,  or additional
restrictions  that may be imposed by certain lenders on the payment of dividends
or distributions  potentially  could limit or suspend the Fund's ability to make
distributions  on  its  common  shares.  Such  a  limitation  or  suspension  or
limitation  could  prevent  the  Fund  from  distributing  at  least  90% of its
investment  company  taxable income and net  tax-exempt  interest as is required
under the Code and  therefore  might  jeopardize  the Fund's  qualification  for
taxation as a regulated  investment  company under the Code and/or might subject
the Fund to the 4% excise tax  discussed  above.  Upon any  failure to meet such
asset coverage requirements,  the Fund may, in its sole discretion,  purchase or
redeem  shares of preferred  stock in order to maintain or restore the requisite
asset  coverage  and  avoid  the  adverse  consequences  to  the  Fund  and  its
shareholders of failing to satisfy the distribution requirement. There can be no
assurance,  however,  that any such action would achieve these  objectives.  The
Fund will endeavor to avoid restrictions on its ability to distribute dividends.

For U.S. federal income tax purposes,  the Fund is permitted to carry forward an
unused net capital loss for any year to offset its capital gains, if any, for up
to eight years following the year of the loss. To the extent subsequent  capital
gains are offset by such losses,  they would not result in U.S.  federal  income
tax  liability  to the Fund and are not  expected to be  distributed  as such to
shareholders.

At the time of an investor's  purchase of Fund shares, a portion of the purchase
price may be attributable  to realized or unrealized  appreciation in the Fund's
portfolio or undistributed taxable income of the Fund. Consequently,  subsequent
distributions by the Fund with respect to these shares from such appreciation or
income  may be  taxable  to such  investor  even  if the  trading  value  of the
investor's  shares  is,  as a result  of the  distributions,  reduced  below the
investor's cost for such shares and the distributions  economically  represent a
return of a portion of the investment.

Foreign  exchange  gains and  losses  realized  by the Fund in  connection  with
certain  transactions  involving foreign  currency-denominated  debt securities,
certain  options and futures  contracts  relating to foreign  currency,  foreign
currency  forward  contracts,  foreign  currencies,  or payables or  receivables
denominated in a foreign  currency are subject to Section 988 of the Code, which
generally  causes  such gains and losses to be  treated as  ordinary  income and
losses and may affect the  amount,  timing and  character  of  distributions  to
shareholders.  Under Treasury regulations that may be promulgated in the future,
any gains from such  transactions  that are not  directly  related to the Fund's
principal business of investing in stock or securities (or its options contracts
or futures contracts with respect to stock or securities) may have to be limited
in order to enable the Fund to satisfy the 90% income  test.  If the net foreign
exchange loss for a year were to exceed the Fund's  investment  company  taxable
income (computed  without regard to such loss), the resulting  ordinary loss for
such year  would not be  deductible  by the Fund or its  shareholders  in future
years.

Sales and other  dispositions of Fund shares are taxable events for shareholders
that are subject to tax. Shareholders should consult their own tax advisers with
reference to their individual  circumstances to determine whether any particular
transaction  in Fund shares is properly  treated as a sale for tax purposes,  as
the following  discussion assumes,  and the tax treatment of any gains or losses
recognized  in such  transactions.  In  general,  if Fund  shares are sold,  the
shareholder  will  recognize  gain or loss equal to the  difference  between the
amount  realized  on the sale and the  shareholder's  adjusted  tax basis in the
shares sold. Such gain or loss will be treated as long-term capital gain or loss
if the shares sold were held for more than one year and otherwise generally will
be  treated  as  short-term  capital  gain  or  loss.  Any  loss  realized  by a
shareholder  upon the sale or other  disposition  of shares  with a tax  holding
period of six months or less will be treated as a long-term  capital loss to the
extent of any amounts treated as distributions  of long-term  capital gains with
respect to such shares.  Losses on sales or other  dispositions of shares may be
disallowed under "wash sale" rules in the event  substantially  identical shares
of the Fund are  purchased  (including  those made pursuant to  reinvestment  of
dividends  and/or  capital  gains  distributions)  within  a  period  of 61 days
beginning  30 days  before  and  ending  30 days  after a  redemption  or  other
disposition  of  shares.  In such a case,  the  disallowed  portion  of any loss
generally would be included in the U.S. federal tax basis of the shares acquired
in the other investments.  The ability to otherwise deduct capital losses may be
subject to other limitations under the Code.



The Fund may, at its  option,  redeem the  Preferred  Shares in whole or in part
subject to certain limitations and to the extent permitted under applicable law,
and is required to redeem all or a portion of the Preferred Shares to the extent
required to maintain the Preferred Shares Basic  Maintenance  Amount (as defined
in the  Prospectus)  and the 1940 Act Preferred Share Asset Coverage (as defined
in the  Prospectus).  Gain or  loss,  if any,  resulting  from a  redemption  of
Preferred  Shares  generally  will be  taxed  as gain or loss  from  the sale of
Preferred  Shares under  Section 302 of the Code rather than as a dividend,  but
only  if the  redemption  distribution  (a)  is  deemed  not  to be  essentially
equivalent  to a dividend,  (b) is in  complete  redemption  of a  shareholder's
interest in the Fund, (c) is substantially  disproportionate with respect to the
shareholder,  or (d) with respect to a non-corporate shareholder,  is in partial
liquidation of the shareholder's  interest in the Fund. For the purposes of (a),
(b), and (c) above,  a  shareholder's  ownership of common  shares and Preferred
Shares will be taken into  account and the common  shares and  Preferred  Shares
held by persons who are related to the redeemed  shareholder may also have to be
taken into  account.  If none of the  conditions  (a) through  (d) are met,  the
redemption proceeds may be considered to be a dividend  distribution  taxable as
ordinary  income as  discussed  above.  In  addition,  any  declared  but unpaid
dividends  distributed to  shareholders  in connection with a redemption will be
taxable to shareholders as dividends as described above.

Under Treasury regulations,  if a shareholder  recognizes a loss with respect to
shares of $2 million or more for an  individual  shareholder,  or $10 million or
more for a  corporate  shareholder,  in any  single  taxable  year (or a greater
amount over a combination of years),  the  shareholder  must file with the IRS a
disclosure  statement on Form 8886.  Shareholders  who own portfolio  securities
directly are in many cases excepted from this reporting  requirement  but, under
current  guidance,  shareholders  of  regulated  investment  companies  are  not
excepted. A shareholder who fails to make the required disclosure to the IRS may
be subject to substantial  penalties.  The fact that a loss is reportable  under
these regulations does not affect the legal  determination of whether or not the
taxpayer's  treatment of the loss is proper.  Shareholders  should  consult with
their tax advisers to determine the  applicability of these regulations in light
of their  individual  circumstances.  Options  written or purchased  and futures
contracts  entered into by the Fund on certain  securities,  indices and foreign
currencies, as well as certain forward foreign currency contracts, may cause the
Fund to  recognize  gains or losses  from  marking-to-market  even  though  such
options may not have lapsed, been closed out, or exercised,  or such futures and
forward  contracts  may not have been  performed  or closed  out.  The tax rules
applicable to these  contracts may affect the  characterization  of some capital
gains and  losses  realized  by the Fund as  long-term  or  short-term.  Certain
options,  futures and forward  contracts  relating to foreign  currencies may be
subject to Section 988, as described above, and accordingly may produce ordinary
income or loss.  Additionally,  the Fund may be required to recognize gain if an
option, futures contract, short sale or other transaction that is not subject to
the mark-to-market  rules is treated as a "constructive sale" of an "appreciated
financial  position"  held by the Fund under  Section 1259 of the Code.  Any net
mark-to-market  gains and/or gains from  constructive  sales may also have to be
distributed  to satisfy  the  distribution  requirements  referred to above even
though the Fund may receive no corresponding  cash amounts,  possibly  requiring
the  disposition  of portfolio  securities  or borrowing to obtain the necessary
cash. Losses on certain options,  futures or forward contracts and/or offsetting
positions  (portfolio  securities or other  positions  with respect to which the
Fund's risk of loss is substantially  diminished by one or more options, futures
or forward  contracts)  may also be deferred under the tax straddle rules of the
Code, which may also affect the characterization of capital gains or losses from
straddle  positions and certain successor  positions as long-term or short-term.
Certain tax elections may be available  that would enable the Fund to ameliorate
some adverse effects of the tax rules described in this paragraph. The tax rules
applicable to options,  futures,  forward contracts and straddles may affect the
amount,  timing and character of the Fund's income and gains or losses and hence
of its distributions to shareholders.

The  federal  income tax  treatment  of the Fund's  investment  in  transactions
involving  swaps,  caps,  floors,  and  collars  and  structured  securities  is
uncertain and may be subject to recharacterization by the IRS. To the extent the
tax treatment of such securities or transactions  differs from the tax treatment
expected by the Fund,  the timing or character of income  recognized by the Fund
could  be  affected,  requiring  the Fund to  purchase  or sell  securities,  or
otherwise change its portfolio, in order to comply with the tax rules applicable
to regulated investment companies under the Code.

The IRS has taken the position  that if a regulated  investment  company has two
classes or more of shares, it must designate distributions made to each class in
any year as  consisting  of no more than  such  class's  proportionate  share of
particular  types of income,  including  ordinary income and net capital gain. A
class's  proportionate  share  of a  particular  type of  income  is  determined
according to the percentage of total dividends paid by the regulated  investment
company to such class. Consequently,  if both common shares and Preferred Shares
are outstanding, the Fund intends to designate distributions made to the classes
of  particular  types of income in  accordance  with the classes'  proportionate
shares of such income.  Thus,  the Fund will  designate  dividends  constituting
capital gain  dividends and other taxable  dividends in a manner that  allocates
such  income  between  the  holders  of common  shares and  Preferred  Shares in
proportion to the total dividends paid to each class during the taxable year, or
otherwise as required by applicable law.



The Fund may be  subject  to  withholding  and other  taxes  imposed  by foreign
countries, including taxes on interest, dividends and capital gains with respect
to its investments in those countries, which would, if imposed, reduce the yield
on or return from those investments.  Tax conventions  between certain countries
and the U.S. may reduce or eliminate such taxes in some cases. The Fund does not
expect to satisfy the requirements for passing through to its shareholders their
pro rata shares of qualified  foreign  taxes paid by the Fund,  with the general
result that  shareholders  would not be entitled to any  deduction or credit for
such taxes on their own tax returns.

Federal law requires  that the Fund  withhold (as "backup  withholding")  28% of
reportable  payments,  including  dividends,  capital gain distributions and the
proceeds of redemptions  and exchanges or  repurchases  of Fund shares,  paid to
shareholders who have not complied with IRS regulations.  In order to avoid this
withholding   requirement,   shareholders   must   certify   on  their   Account
Applications,  or on separate IRS Forms W-9, that the Social  Security Number or
other  Taxpayer  Identification  Number they provide is their correct number and
that they are not  currently  subject  to backup  withholding,  or that they are
exempt  from  backup  withholding.  The Fund may  nevertheless  be  required  to
withhold if it receives notice from the IRS or a broker that the number provided
is  incorrect  or backup  withholding  is  applicable  as a result  of  previous
underreporting of interest or dividend income.

The  description of certain U.S.  federal tax  provisions  above relates only to
U.S. federal income tax  consequences  for  shareholders  who are U.S.  persons,
i.e., U.S. citizens or residents or U.S. corporations,  partnerships,  trusts or
estates,  and who are subject to U.S.  federal income tax.  Investors other than
U.S.  persons  may be subject to  different  U.S.  tax  treatment,  including  a
non-resident alien U.S.  withholding tax at the rate of 30% or at a lower treaty
rate on  amounts  treated as  ordinary  dividends  from the Fund and,  unless an
effective  IRS Form W-8BEN or other  authorized  withholding  certificate  is on
file, to backup  withholding  at the rate of 28% on certain other  payments from
the Fund.  Under the provisions the 2004 Tax Act,  dividends paid by the Fund to
non-U.S.  shareholders  that are  derived  from  short-term  capital  gains  and
qualifying net interest  income  (including  income from original issue discount
and  market  discount),  and  that  are  properly  designated  by  the  Fund  as
"interest-related  dividends"  or  "short-term  capital  gain  dividends,"  will
generally not be subject to U.S. withholding tax, provided that the income would
not be  subject  to  federal  income  tax if  earned  directly  by the  non-U.S.
shareholder.  In addition,  pursuant to the 2004 Tax Act,  distributions  of the
Fund  attributable  to gains  from sales or  exchanges  of "U.S.  real  property
interests" (as defined in the Code and regulations) (including certain U.S. real
property holding corporations) will generally be subject to U.S. withholding tax
and may give rise to an  obligation on the part of the non-U.S.  shareholder  to
file a United States tax return.  The  provisions  contained in the 2004 Tax Act
relating to  distributions to shareholders  who are non-U.S.  persons  generally
will apply to distributions  with respect to taxable years of the Fund beginning
after December 31, 2004 and before January 1, 2008.  Shareholders should consult
their own tax advisers on these matters and on state,  local,  foreign and other
applicable tax laws.


             PERFORMANCE-RELATED, COMPARATIVE AND OTHER INFORMATION

PERFORMANCE-RELATED  INFORMATION.  From time to time, in  advertisements,  sales
literature or reports to  shareholders,  the past performance of the Fund may be
illustrated and/or compared with that of other investment companies with similar
investment  objectives.  For example, yield or total return of the Fund's shares
may be  compared to averages  or  rankings  prepared by Lipper,  Inc.,  a widely
recognized  independent service which monitors mutual fund performance;  the S&P
500 Index; the Dow Jones  Industrial  Average;  or other  comparable  indices or
investment  vehicles.  In addition,  the performance of the Fund's shares may be
compared to  alternative  investment  or savings  vehicles  and/or to indices or
indicators of economic activity, e.g., inflation or interest rates. The Fund may
also  include  securities  industry  or  comparative   performance   information
generally  and  in  advertising  or  materials   marketing  the  Fund's  shares.
Performance  rankings and listings  reported in newspapers or national  business
and financial publications,  such as Barron's,  Business Week, Consumers Digest,
Consumer Reports,  Financial World, Forbes,  Fortune,  Investors Business Daily,
Kiplinger's  Personal Finance Magazine,  Money Magazine,  New York Times,  Smart
Money, USA Today, U.S. News and World Report, The Wall Street Journal and Worth,
may also be cited (if the Fund is listed  in any such  publication)  or used for
comparison,  as well as  performance  listings and rankings  from various  other
sources including  Bloomberg  Financial  Markets,  CDA/Wiesenberger,  Donoghue's
Mutual  Fund  Almanac,  Ibbotson  Associates,  Investment  Company  Data,  Inc.,
Johnson's  Charts,  Kanon Bloch Carre and Co.,  Lipper,  Inc.,  Micropal,  Inc.,
Morningstar,  Inc.,  Schabacker  Investment  Management and Towers Data Systems,
Inc. In addition,  from time to time,  quotations  from articles from  financial
publications such as those listed above may be used in advertisements,  in sales
literature or in reports to shareholders of the Fund. The Fund may also present,
from time to time, historical  information depicting the value of a hypothetical
account in one or more classes of the Fund since inception.



Past performance is not indicative of future results. At any time in the future,
yields  and  total  return  may be higher or lower  than past  yields  and total
return, and there can be no assurance that any historical results will continue.

THE  ADVISERS.  From time to time,  the Advisers may use, in  advertisements  or
information  furnished  to  present  or  prospective  shareholders,  information
regarding the Advisers  including,  without  limitation,  information  regarding
their  investment  style,  countries of  operation,  organization,  professional
staff, clients (including other registered investment  companies),  assets under
management  and  performance  record.  These  materials may refer to opinions or
rankings of the Advisers' overall investment management performance contained in
third-party reports or publications.


                              FINANCIAL STATEMENTS

INDEPENDENT  REGISTERED  PUBLIC  ACCOUNTING  FIRM.  The statements of assets and
liabilities and operations of the Fund as of November 30, 2004,  incorporated by
reference  into this  Statement of Additional  Information  have been audited by
______________  ("_____"),  the Fund's independent  registered public accounting
firm, as set forth in its report  thereon  appearing  elsewhere  herein,  and is
included in reliance  upon such report given upon the  authority of such firm as
experts in accounting and auditing.  _____, located at ___________________,  has
served as the Fund's independent registered public accounting firm since January
23, 2002,  and has been selected to serve in such capacity for the Fund's fiscal
year  ending  November  30,  2005.  The  financial   statements  and  report  of
independent  registered  public  accounting firm  incorporated by reference into
this  Statement of  Additional  Information  have been so  incorporated  and the
financial  highlights  included  in the  prospectus  have  been so  included  in
reliance  upon the report of  ________  given on their  authority  as experts in
auditing and accounting.

INCORPORATION  BY REFERENCE.  The Fund's audited  Portfolio of  Investments  and
Statement of Assets and Liabilities  dated November 30, 2004;  audited Statement
of Operations and Statement of Changes in Net Assets for the year ended November
30, 2004; and report of the independent  registered  public  accounting firm for
the year ended  November 30, 2004,  are included in the Fund's Annual Report for
the fiscal year ended November 30, 2004, and  incorporated  herein by reference.
The Fund's  unaudited  Portfolio  of  Investments  and  Statement  of Assets and
Liabilities  dated May 31, 2005 and the unaudited  Statement of  Operations  and
Statement of Changes in Net Assets for the six months  ended May 31,  2005,  are
included in the Fund's Semi-Annual Report for the six months ended May 31, 2005,
and  incorporated  herein  by  reference  You may  request  a free  copy of this
Statement  of  Additional  Information  or the  Fund's  annual  and  semi-annual
reports, request other information about the Fund, or make shareholder inquiries
by  calling  (800)  331-1710  or by  writing  to the  Fund.  This  Statement  of
Additional  Information  and annual and  semi-annual  reports are also available
free of charge on the Fund's  website  (http://www.boulderfunds.net)  and on the
Securities and Exchange  Commission's website  (http://www.sec.gov),  which also
contains other information about the Fund. You may also email requests for these
documents to  publicinfo@sec.gov  or make a request in writing to the Securities
and Exchange Commission's Public Reference Section, Washington, D.C. 20549-0102.
The Fund's registration number under the 1940 Act is 811-02328.


                             ADDITIONAL INFORMATION

A Registration Statement on Form N-2, including amendments thereto,  relating to
the shares  offered  hereby,  has been filed by the Fund with the Securities and
Exchange  Commission,  Washington,  D.C. The  prospectus  and this  Statement of
Additional  Information do not contain all of the  information  set forth in the
Registration  Statement,  including  any exhibits  and  schedules  thereto.  For
further  information  with  respect to the Fund and the shares  offered  hereby,
reference is made to the  Registration  Statement.  Statements  contained in the
prospectus  and this  Statement of Additional  Information as to the contents of
any contract or other document  referred to are not necessarily  complete and in
each instance  reference is made to the copy of such contract or other  document
filed as an exhibit to the  Registration  Statement,  each such statement  being
qualified in all respects by such reference.






Part C.  Other Information.

Item 24.  Financial Statements and Exhibits

1.   Financial Statements:

     a.   Financial   Statements   included  in  Part  A  (Prospectus)  of  this
          Registration Statement:

          i.   Financial highlights for each of the five years ended 2000, 2001,
               2002, 2003, 2004 (1)

     b.   Financial  Statements  included  in Part B  (Statement  of  Additional
          Information) of this Registration Statement.

          i.   Report of Independent Accountants (2)

          ii.  Statement of assets and liabilities as of November 30, 2004 (2)

          iii. Statement of operations for the year ended November 30, 2004 (2)

          iv.  Statement of cash flows for the year ended November 30, 2004 (2)

          v.   Statement  of changes  in net assets for each of the years  ended
               November 30, 2004 and 2003 (2)

          vi.  Schedule of Investments as of November 30, 2004 (2)

2.   Exhibits

     a.   Fund's Charter

          i.   Articles of Incorporation of the Fund (3)

          ii.  Articles of Amendment dated October 9, 1991 (3)

          iii. Articles of Amendment dated November 24, 1998 (3)

          iv.  Articles Supplementary dated January 27, 2000 (3)

          v.   Articles of Amendment dated April 26, 2002 (3)

          vi.  Articles of Amendment dated October 21, 2002 (3)

          vii. Articles of Amendment dated October 23, 2002 (3)

          viii. Articles Supplementary dated April 8, 2004 (4)

          ix.  Articles of Amendment dated May 18, 2004 (4)

          x.   Articles of Amendment and Restatement dated May 18, 2004 (4)

          xi.  Articles of Amendment dated April 25, 2005 (4)

          xii. Articles   Supplementary   Creating  and  Fixing  the  Rights  of
               Preferred Stock (5)

     b. Amended and Restated By-laws of the Fund (4)

     c. Not applicable

     d. Specimen share certificates (5)

     e. Dividend Reinvestment Plan (4)

     f. Not applicable

     g. Investment Advisory Agreements

          i.   Investment  Co-Advisory  Agreement  between  the Fund and Boulder
               Investment Advisers, L.L.C. ("BIA") (3)

          ii.  Investment  Co-Advisory  Agreement  between  the Fund and Stewart
               West  Indies  Trading  Company,  Ltd.  d/b/a  Stewart  Investment
               Advisers ("SIA") (3)

     h.   Purchase Agreement among the Fund, BIA and the Underwriters (5)

     i.   Deferred Compensation Plan of Kalman J. Cohen, Director. (3)

     j.   Custody  Agreement between the Fund and Investors Bank & Trust Company
          (4)

     k.   Other Agreements

          i.   Transfer Agency Agreement between the Fund and PFPC, Inc. (4)



          ii.  Administration Agreement between the Fund and Fund Administrative
               Services, LLC. (4)

          iii. Amendment to  Administration  Agreement between the Fund and Fund
               Administrative Services, LLC. (4)

          iv.  Administration  Agreement  between the Fund and Investors  Bank &
               Trust Company (4)

          v.   Collateral Securities Account Agreement (4)

          vi.  Loan and Pledge  Agreement  between the Fund and Custodial  Trust
               Company (4)

          vii. Delegation  Agreement between the Fund and Investors Bank & Trust
               Company (4)

          viii. Auction  Agency  Agreement  between the Fund and  Deutsche  Bank
               Trust Company Americas (5)

          ix.  Broker-Dealer      Agreement     between     the     Fund     and
               _____________________. (5)

     l.   Opinions of Counsel

          i.   Opinion and consent of Paul Hastings Janofsky & Walter (5)

          ii.  Opinion and consent of Venable, Baetjer and Howard, LLP (5)

     m.   Consents to Service of Process

          i.   Consent to Service of Process with respect to Dennis Causier,  an
               independent director of the Fund (5)

          ii.  Consent to Service of Process with respect to SIA (3)

     n.   Consent of __________ (5)

     o.   Not applicable

     p.   Initial Share Purchase Agreement (5)

     q.   Not applicable

     r.   Code of Ethics of the Fund, BIA and SIA (4)

     s.   Power of Attorney (4)

(1)  Incorporated  herein by reference to the  Registrant's  Form N-CSR filed on
     __________, 2005 for six months ending May 31, 2005.

(2)  Incorporated  herein by reference to the  Registrant's  Form N-CSR filed on
     February 8, 2005 for year ending November 30, 2004.

(3)  Incorporated  hereby by reference to  Amendment  No. 8 to the  Registration
     Statement  on Form  N-2/A of the  Registrant  filed on  November  20,  2002
     (Securities   Act   File   No.    33-100634;    EDGAR   Accession    Number
     0000950117-02-002800.

(4)  Filed herewith.

(5)  To be filed by amendment.

Item 26. Marketing Arrangements. Reference is made to the Purchase Agreement for
the  Fund's  preferred  shares  to be filed by  amendment  to this  Registration
Statement.

Item 27. Other Expenses of Issuance and Distribution.  The Fund expects to incur
approximately  $_________  of  expenses in  connection  with the  Offering.  The
following  table  identifies  the  significant   expenses  associated  with  the
Offering.



Registration Fees                                    $
Printing Costs (other than certificates)             $
Accounting Fees and Expenses                         $
Legal Fees and Expenses                              $
Rating Agency Fees                                   $
Miscellaneous                                        $
TOTAL ESTIMATED COSTS                                $



Item 28. Persons controlled by or under common control with the Fund. The Ernest
Horejsi Trust No. 1B (the "EH Trust") is the Fund's largest  shareholder and has
asserted the existence of control with respect to the Fund.  Together with other
trusts and  entities  affiliated  with the  Horejsi  family  (collectively,  the
"Horejsi  Affiliates"),  the EH Trust has  asserted  control with respect to two
other  investment  companies,  the Boulder Total Return Fund, Inc. and the First
Financial Fund,  Inc. The Horejsi  Affiliates also own the Advisers and FAS, the
Fund's  co-administrator.  The following table shows the relationship of each of
the related  companies to the Fund and each  company's  ownership by the Horejsi
Affiliates.


                                                                                              
                                                                Principal Shareholder(s)/Equity       Percentage of shares
                                                                           Holder(s)                  directly held in the
                                                                                                     respective company as
                                                                                                        of June 30, 2005

The Fund                                                      EH Trust                              [21%]

Boulder Total Return Fund, Inc. NYSE: BTF                     EH Trust                              [27.66%]
                                                              Lola Brown Trust No. 1B               [11.11%]
                                                              Evergreen Atlantic LLC                [2.79%]
                                                              Susan L. Ciciora Trust                [1.42%]
                                                              John S. Horejsi Trust                 [0.85%]
                                                              Evergreen Trust                       [0.51%]

First Financial Fund, Inc. NYSE: FF                           Stewart R. Horejsi Trust No. 2A       [7.36%]
                                                              EH Trust                              [7.50%]
                                                              Lola Brown Trust No. 1B               [10.18%]
                                                              Mildred Horejsi Trust                 [8.34%]
                                                              Susan L. Ciciora Trust                [5.90%]

Boulder Investment Advisers, LLC                              Lola Brown Trust No. 1B               50%
                                                              Evergreen Atlantic LLC                50%

Stewart West Indies Trading Company,  Ltd. doing business as  Stewart West Indies Trust             100%
Stewart Investment Advisers

Fund Administrative Services, LLC                             Lola Brown Trust No. 1B               50%
                                                              Evergreen Atlantic LLC                50%



The EH Trust was established by Ernest Horejsi,  Stewart  Horejsi's  father,  in
1966. It is an  irrevocable  grantor trust formed in Kansas but now domiciled in
Alaska.  The  Lola  Brown  Trust  No.  1B was  established  by Lola  Brown,  the
grandmother  of Stewart  Horejsi,  in 1967. It is an  irrevocable  grantor trust
formed in Kansas  but now  domiciled  in  Alaska.  The Susan  Ciciora  Trust was
established by Susan Ciciora, the daughter of Stewart Horejsi, in 1998. It is an
irrevocable  grantor  trust formed in South Dakota but now  domiciled in Alaska.
The John S. Horejsi Trust was  established  by John Horejsi,  the son of Stewart
Horejsi,  in 1998. It is an irrevocable grantor trust formed in South Dakota but
now domiciled in Alaska.  The Evergreen Trust was established by Stewart Horejsi
in 1995. It is an irrevocable  grantor trust formed in Bermuda but now domiciled
in  Alaska.  The  Stewart R.  Horejsi  Trust No. 2A was  established  by Stewart
Horejsi in 1968.  It is an  irrevocable  grantor  trust formed in Kansas but now
domiciled in Alaska.  The Mildred  Horejsi was  established by Mildred  Horejsi,
Stewart Horejsi's mother, in 1965. It is an irrevocable  grantor trust formed in
New York but now  domiciled  in  Alaska.  The  Stewart  West  Indies  Trust  was
established  by Stewart  Horejsi in 1998.  It is an  irrevocable  grantor  trust
formed in South Dakota but now domiciled in Alaska.  Evergreen Atlantic LLC is a
Colorado  family limited  liability  company formed in 1995. Its members are the
Evergreen Trust (11%),  the Susan Ciciora Trust (30%), the John S. Horejsi Trust
(15%) and the Stewart West Indies Trust (44%).

Item 29.  Number of Holders of Shares.


                                              
Title of Class                                   Record Holders as of_______, 2005

Common Stock, par value $.01 per share



Item 30.  Indemnification.  Section 2-418 of the General  Corporation Law of the
State of Maryland,  Article VIII of the  Registrant's  Articles of Incorporation
(to be filed as an Exhibit to this Registration  Statement),  Article 5.2 of the
Registrant's  By-laws  (to be filed as an  Exhibit  to this  Registration),  the
Investment  Advisory  Agreements  (to be filed as Exhibits to this  Registration
Statement)  provide  for   indemnification.   Insofar  as  indemnification   for
liabilities  arising  under  the  Securities  Act of  1933  (the  "Act")  may be
permitted to  directors,  officers and  controlling  persons of the  Registrant,
pursuant to the foregoing  provisions,  or otherwise,  the  Registrant  has been
advised  that in the opinion of the  Securities  and  Exchange  Commission  such
indemnification  is  against  public  policy  as  expressed  in the  Act and is,
therefore,  unenforceable. In the event that a claim for indemnification against
such liabilities  (other than the payment by the Registrant of expenses incurred
or paid by a director,  officer or  controlling  person of the Registrant in the
successful  defense of any  action,  suit or  proceeding)  is  asserted  by such
director,  officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been  settled by  controlling  precedent,  submit to a court of  appropriate
jurisdiction the question whether such  indemnification  by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.



Item 31. Business and Other Connections of the Investment Adviser. Registrant is
fulfilling the requirement of this Item 31 to provide a list of the officers and
directors of its investment advisers,  together with information as to any other
business, profession,  vocation or employment of a substantial nature engaged in
by that entity or those of its officers and directors during the past two years,
by  incorporating  herein by reference the information  contained in the current
Form ADV filed with the Securities  and Exchange  Commission by each of BIA (SEC
File No.  ________) and SIA (SEC File No.  ________)  pursuant to the Investment
Advisers Act of 1940, as amended.

Item 32. Location of Accounts and Records.

Fund Administrative Services, L.L.C.            Co-Administrator
1680 38th Street (Suite 800)
Boulder, CO 80301

Investors Bank & Trust Company.                 Co-Administrator
200 Clarendon Street
P.O. Box 9130 Boston, MA 02117

PFPC, Inc.                                      Common Stock Transfer Agent
400 Bellevue Parkway
Wilmington, Delaware 19809

Investors Bank & Trust Company                  Custodian
200 Clarendon Street
P.O. Box 9130 Boston, MA 02117

Deutsche Bank Trust Company Americas            Preferred Stock Transfer Agent
--------------------------
New York, NY

Item 33. Management Services. Not applicable.

Item 34. Undertakings

     1.   The Registrant hereby undertakes to suspend the offering of the shares
          until it amends its Prospectus if (a) subsequent to the effective date
          of its Registration Statement,  the net asset value declines more than
          10 percent  from its net asset value as of the  effective  date of the
          Registration  Statement  or (b) the net asset  value  increases  to an
          amount greater than its net proceeds as stated in the Prospectus.

     2.   Not applicable.

     3.   Not applicable.

     4.   Not applicable.

     5.   The Registrant hereby undertakes that:

          a.   For  the  purposes  of  determining   any  liability   under  the
               Securities Act of 1933, the information  omitted from the form of
               prospectus filed as part of a registration  statement in reliance
               on Rule 430A and contained in the form of prospectus filed by the
               Registrant  under Rule 497(h)  under the  Securities  Act of 1933
               shall be deemed to be part of the  Registration  Statement  as of
               the time it was declared effective.

          b.   For the purpose of determining any liability under the Securities
               Act of 1933, each  post-effective  amendment that contains a form
               of prospectus shall be deemed to be a new Registration  Statement
               relating to the securities  offered therein,  and the offering of
               the  securities  at that time  shall be deemed to be the  initial
               bona fide offering thereof.



     6.   The Registrant  hereby undertakes to send by first class mail or other
          means designed to ensure equally prompt delivery,  within two business
          days of  receipt  of an oral or  written  request,  any  Statement  of
          Additional Information.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended,  and the
Investment Company Act of 1940, as amended,  the Registrant has duly caused this
Amendment  to its  Registration  Statement  to be  signed  on its  behalf by the
undersigned,  thereunto duly authorized, in the City of Boulder and the State of
Colorado, on the 8th day of July, 2005

                           BOULDER GROWTH & INCOME FUND, INC.


                           By: /s/ Stephen C. Miller

                           President