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Q & A

Over the last few years, a handful of so called "closed-end fund activists" have pushed to eliminate the discount between share price and net asset values of many closed-end funds. But Stewart Horejsi, who grew up in Salinas, Kan. is different. A former gas salesman for his family's welding company, Horejsi has no desire to push for funds to be opened or to buy back shares to tackle a persistent discount. Rather Horejsi, who last year seized control of the Preferred Income Management Fund and turned the day-to-day portfolio management over to two investment firms for which he is a principal, plans to wrest control of two other closed-end funds - the USLife Income Fund and the First Financial Fund.

Lori Pizzani, a free-lance writer, recently spoke with Horejsi from his home in Paradise Valley, Ariz..

MFMN: How did you first get interested in investing?

Horejsi: I graduated from the University of Kansas in 1959 and received my Masters from Indiana University in 1961 in investments and banking. Finance and investments was always my first love. In my junior year of college, I first bought a few stocks.

MFMN: But you did not initially pursue a career in the finance and investments field?

Horejsi: No. I joined my family's welding supply business. I went to help my family's company and I got stuck there. In 1980, we sold the Oregon business. I took a sabbatical and read, read, read. I started studying investments and did better with my investments. I read about Berkshire Hathaway's Warren Buffet and bought shares of his company. His success record appealed to me. You don't have to be around him very long to pick-up on his sense of integrity.

MFMN: Some have labeled you a Buffet follower and have suggested that Buffet is your mentor. Is this accurate?

Horejsi: He's my mentor in that I go to annual (Berkshire Hathaway) meetings and read his annual reports. I admire him and what he does.

MFMN: You have been managing your family's money for some time?

Horejsi: Yes, my maternal grandmother, Lola Brown, died in 1963 and left $100,000 in trust. That trust is now worth $200 million. I also have two parental trusts from when my parents died 10 years ago. Those two are now worth between $10 million and $20 million.

MFMN: How did you become interested in closed-end funds?

Horejsi: I first became interested in closed-end funds about four years ago because of the sizeable discounts that existed. I screened some and thought maybe we'd be able to get control. I'm not prone to chase stocks.

We started buying the Preferred Income Fund at a time that I thought equities were overpriced. I chose PFM because I thought I would keep it as a fixed-income product. PFM was attractive because of its downside hedge. At that time, I bought two or three funds but I was most successful with PFM. I decided I wanted to have some say in what the fund did.

MFMN: You consequently purchased as much as a 42 percent stake in the fund and were successful, via a long proxy battle with the fund's adviser, Flaherty & Crumrine of Pasadena, Calif., in determining the outcome of the vote. You were able to install your director nominees to the board and get approval for the fund's investment advisory contract to be awarded to Boulder Investment Advisers of Boulder, Colo. and sign on another Barbados-based asset management company you control as the fund's sub-adviser.

What makes you different from other closed-end fund shareholder activists who have tried to influence control over closed-end funds?

Horejsi: I don't think I belong being grouped in with them. I still don't know that I quite understand what they are looking to accomplish. I want to have some board representation. I want to have a say in the fund, to have someone on the board to have a say in what goes on.

MFMN: You have chosen to change the former PFM income fund into a total return fund, by virtue of replacing the fund's bonds with stocks and you have changed the fund's name to the Boulder Total Return Fund. What did the other minority shareholders have to say about these changes?

Horejsi: I've had no direct contact with dissident shareholders. But several Boulder Total Return Fund investors have known me for a long time. Ninety-eight percent of the shares are held in street name, so I can't tell who the shareholders are. I've never talked to a shareholder.

MFMN: The guess is that the $200 million Boulder Total Return Fund is buying shares of Berkshire Hathaway, although no portfolio information has been made public since the changeover. Is this true?