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BOULDER GROWTH & 1680 38TH STREET, SUITE 800
INCOME FUND, INC. BOULDER, COLORADO 80301
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on October 1, 2002
To the Shareholders:
Notice is hereby given that the Annual Meeting of Shareholders of
Boulder Growth & Income Fund, Inc. (the "Fund"), a Maryland corporation, will be
held at Marriott Residence Inn, 3030 Center Green Drive, Boulder, Colorado at
10:00 a.m. Mountain Daylight Time, on October 1, 2002, for the following
purposes:
1. To elect one (1) Director of the Fund (PROPOSAL 1).
2. To approve or disapprove a transferable rights offering (PROPOSAL 2).
3. To approve or disapprove an amendment to the Fund's charter to permit
the Board, without shareholder approval, to increase or decrease the
Fund's authorized capital (PROPOSAL 3).
4. To approve or disapprove an amendment to the Fund's charter to permit
the issuance of preferred stock (PROPOSAL 4).
5. To approve or disapprove an amendment to the Fund's charter to permit
the involuntary redemption of shareholders of 100 or fewer shares of
common stock (PROPOSAL 5).
6. To transact such other business as may properly come before the Meeting
or any adjournments thereof.
The Board of Directors of the Fund has fixed the close of business on
August 23, 2002 as the record date for the determination of shareholders of the
Fund entitled to notice of and to vote at the Annual Meeting.
By Order of the Board of Directors,
STEPHANIE KELLEY
SECRETARY
August 28, 2002
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TO ENABLE SHAREHOLDERS TO VOTE IN THE MOST PROMPT AND CONVENIENT MANNER POSSIBLE
WE HAVE PROVIDED FOUR WAYS TO VOTE:
BY INTERNET
BY TOLL-FREE TELEPHONE
BY COMPLETING AND MAILING YOUR PROXY CARD
BY WRITTEN BALLOT AT THE MEETING
IF YOU WISH TO VOTE BY PHONE OR INTERNET PLEASE REFER TO THE INSTRUCTIONS
ATTACHED TO THE ENCLOSED PROXY CARD OR VOTING FORM. THE PROCESS OF VOTING BY
PHONE OR INTERNET WILL ASSIST THE FUND IN LIMITING COSTS ASSOCIATED WITH THIS
SOLICITATION AND ALSO SAVE TIME FOR SHAREHOLDERS VOTING THEIR SHARES.
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE ANNUAL MEETING AND WHO DO NOT VOTE
BY PHONE OR INTERNET ARE REQUESTED TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY
CARD. THE PROXY CARD SHOULD BE RETURNED IN THE ENCLOSED ENVELOPE, WHICH NEEDS NO
POSTAGE IF MAILED IN THE CONTINENTAL UNITED STATES. INSTRUCTIONS FOR THE PROPER
EXECUTION OF PROXIES ARE SET FORTH ON THE INSIDE COVER.
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INSTRUCTIONS FOR SIGNING PROXY CARDS
The following general rules for signing proxy cards may be of
assistance to you and may avoid the time and expense to the Fund involved in
validating your vote if you fail to sign your proxy card properly.
1. Individual Accounts: Sign your name exactly as it appears in the
registration on the proxy card.
2. Joint Accounts: Either party may sign, but the name of the party signing
should conform exactly to a name shown in the registration.
3. All Other Accounts: The capacity of the individual signing the proxy
card should be indicated unless it is reflected in the form of registration. For
example:
REGISTRATION VALID SIGNATURE
------------ ---------------
CORPORATE ACCOUNTS
(1) ABC Corp. ABC Corp.
(2) ABC Corp. John Doe, Treasurer
(3) ABC Corp., c/o John Doe Treasurer John Doe
(4) ABC Corp. Profit Sharing Plan John Doe, Trustee
TRUST ACCOUNTS
(1) ABC Trust Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee, u/t/d 12/28/78 Jane B. Doe
CUSTODIAN OR ESTATE ACCOUNTS
(1) John B. Smith, Cust., John B. Smith
f/b/o John B. Smith, Jr. UGMA
(2) John B. Smith John B. Smith, Jr., Executor
2
QUESTIONS AND ANSWERS REGARDING THE PROPOSED RIGHTS OFFERING
1. WHAT IS BEING ASKED OF ME AS A SHAREHOLDER?
The Board of Directors (the "Board") of Boulder Growth & Income Fund,
Inc. (the "Fund") is asking that you approve a proposed transferable
rights offering (the "Proposed Offering") which would permit existing
shareholders of the Fund, and those who purchase rights sold by the
existing shareholders, to purchase additional Fund shares at a discount
to the lesser of market price or net asset value with nominal
transaction costs.
2. WHAT IS THE BOARD'S RECOMMENDATION?
Your Board, including all of the independent directors of the Fund,
unanimously recommends that you vote in favor of the Proposed Offering.
3. WHAT IS A RIGHTS OFFERING?
A rights offering is an opportunity for shareholders to purchase
additional shares of the Fund at a specified price - the "subscription
price" - with nominal transaction costs. To encourage shareholders to
participate in the Proposed Offering, the subscription price is set at
a discount to the lesser of the then-current market price or net asset
value. Although shareholders are not required to purchase additional
shares, they are given the opportunity, or "right", to purchase shares
based on the number of underlying shares they own on the applicable
record date. Rights may either be transferable or non-transferable and
the offering may or may not be underwritten with a commitment by the
underwriter to buy those shares which are not subscribed. In the case
of the Proposed Offering, the offering will be transferable and an
underwriter will not be used.
4. HOW WOULD A RIGHTS OFFERING BENEFIT THE FUND AND ME AS A SHAREHOLDER?
Rights offerings are conducted for a number of reasons, but primarily
to (a) spread fixed Fund expenses across more assets and thus reduce
the Fund's expense ratio and (b) to provide the Fund with additional
capital to purchase investments which the Fund's advisers believe will
enhance shareholder value. We have discussed these and other potential
benefits below in "Reasons for Conducting the Proposed Offering".
5. HOW DOES THE PROPOSED OFFERING DIFFER FROM MOST OTHER RIGHTS OFFERINGS?
The Proposed Offering is a "one-for-one" offering. This means that
shareholders will receive one right to purchase one share for each
share that they own on the record date. As most rights offerings are
conducted on a 1-for-3 (i.e., the right to buy one share of stock for
every three shares held) or greater ratio (e.g., 1-for-5), the Proposed
Offering (i.e., 1-for-1) will result in more assets being raised than
would be the case if a lower ratio were used. The Board believes that a
one-for-one offering is more beneficial to the Fund and shareholders
because the fixed costs of conducting the Proposed Offering are spread
across more assets.
6. WHAT WILL BE THE SUBSCRIPTION PRICE FOR THE PROPOSED OFFERING?
The Proposed Offering contemplates new shares being sold at a price
equal to 95% of the lesser of (a) the net asset value of the Fund's
shares on the expiration date of the Proposed Offering or (b) the
volume-weighted average market price of the Fund's shares on such date
and the four immediately preceding trading days.
7. WHAT IS AN OVER-SUBSCRIPTION RIGHT?
An over-subscription privilege will be available only to shareholders
on the record date who fully subscribe to their primary shares and wish
to purchase additional shares (i.e., more than their one-for-one
allotment). Any shares for which subscriptions have not been received
will be offered to shareholders who have exercised all of their
initially-issued rights and have over-subscribed for more. Any
available shares will be allocated among those who over-subscribe based
on the number of shares they originally owned on the record date.
8. WHAT IS DILUTION AND HOW DOES IT AFFECT ME?
With respect to the Proposed Offering, "dilution" is a reduction in the
net asset value of a shareholder's shares in the Fund caused by the
Fund's issuance of new shares at a price below net asset value. It also
refers to the reduction in a shareholder's percentage ownership in the
Fund that would result if the shareholder failed to fully exercise his
rights. Even though EXERCISING shareholders are likely to experience
3
some "dilution" (e.g., that attributable to their pro rata share of
offering expenses), dilution occurs most significantly with respect to
the NON-EXERCISING shareholders. A "transferable" rights offering is
intended to minimize this dilutive effect to non-exercising
shareholders. If shareholders elect not to exercise their rights, and
fail to trade the rights on the exchange, they will be fully diluted
(i.e., after the offering, the underlying value of their shares will be
less, perhaps materially so). It is for this reason that the Board
encourages shareholders to fully participate in the Proposed Offering.
See additional discussion under "Dilution" in Proposal 2 of the Proxy
Statement.
9. WHAT IS A TRANSFERABLE RIGHTS OFFERING?
Rights may be "transferable" or "non-transferable". Non-transferable
rights are not transferable and thus are not traded on an exchange and
have no value if they are not exercised. The Proposed Offering
recommends a transferable rights offering, where the rights are
expected to be traded on the New York Stock Exchange ("NYSE").
Non-subscribing shareholders would have the option of selling their
rights through the exchange or the Fund's subscription agent. Selling
the rights would allow a non-subscribing shareholder the potential to
offset some of the dilution which otherwise will occur. In contrast, in
a non-transferable rights offering, a non-subscribing shareholder would
experience full dilution.
10. DO I HAVE TO PARTICIPATE IN THE RIGHTS OFFERING OR CAN I SELL MY
RIGHTS?
The Proposed Offering contemplated by this Proxy is entirely voluntary.
However, if a shareholder fails to participate (i.e., fails to exercise
his or her rights) or fails to trade the rights on the exchange, the
result will be full dilution.
11. WHAT ARE THE TRANSACTION COSTS ON THE SALE OR EXERCISE OF MY RIGHTS?
Although shareholders may elect to use their broker to trade their
rights, in which case a substantial commission will be charged
(relative to the intrinsic value of the right), the Fund will make
arrangements to facilitate the sale at no direct commission cost to the
shareholder.
12. HOW WILL THE PROCEEDS OF THE PROPOSED OFFERING BE APPLIED?
If completed, the proceeds of the Proposed Offering will be invested in
additional securities consistent with the Fund's investment objective
and policies.
13. WHEN WILL THE PROPOSED OFFERING TAKE PLACE?
If the Proposed Offering is approved by shareholders, subject to final
approval by the Fund's Board, the rights offering is expected to be
conducted as soon after the Meeting as practicable and should be
concluded before the end of 2002. This, of course, is subject to change
based on market conditions and other factors the Board and management
may consider relevant.
14. WILL THE HOREJSI AFFILIATES PARTICIPATE IN THE RIGHTS OFFERING?
The Horejsi Affiliates (defined below), which own approximately 21% of
the Fund, as well as all officers and directors of the Fund owning Fund
shares, intend to fully exercise their rights. If the Horejsi
Affiliates fully exercise their over-subscription privilege, under
certain circumstances (e.g., low shareholder participation in both the
Proposed Offering and the over-subscription privilege), the affiliates
could substantially increase their percentage ownership in the Fund.
For more detailed discussion, see "What will the Horejsi Affiliates do
in the Proposed Offering" below.
15. WHAT OTHER MATTERS ARE BEING VOTED ON?
Four other matters are being voted on at this Meeting. First, the
election of Stephen C. Miller, a Class I director, for a term of 3
years. Second, to amend the Fund's charter to permit the Board, without
shareholder approval, to increase or decrease the Fund's authorized
capital. Third, to amend the Fund's charter to permit the involuntary
redemption of shareholders of 100 or fewer shares of common stock.
Fourth, to amend the Fund's charter to permit the Fund to issue
preferred stock.
16. WHO SHOULD I CALL IF I HAVE QUESTIONS?
You should direct your questions to Georgeson Shareholder
Communications, Inc. who has been retained to assist with the proxy
solicitation. They can be contacted at 1-800-732-6518.
4
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BOULDER GROWTH &
INCOME FUND, INC. 1680 38TH STREET, SUITE 800
BOULDER, COLORADO 80301
ANNUAL MEETING OF SHAREHOLDERS
October 1, 2002
PROXY STATEMENT
This document is a proxy statement ("Proxy Statement") for Boulder Growth &
Income Fund, Inc. ("BIF" or the "Fund"). This Proxy Statement is furnished in
connection with the solicitation of proxies by the Fund's Board of Directors
(collectively, the "Board" and individually, the "Directors") for use at the
Annual Meeting of Shareholders of the Fund to be held on Tuesday, October 1,
2002, at 10:00 a.m. Mountain Daylight Time, at the Marriott Residence Inn, 3030
Center Green Drive, Boulder, Colorado, and at any adjournments thereof (the
"Meeting"). A Notice of Annual Meeting of Shareholders and proxy card for the
Fund accompany this Proxy Statement. Proxy solicitations will be made, beginning
on or about August 28, 2002, primarily by mail, but proxy solicitations may also
be made by telephone, online on the Fund's web site, telegraph or personal
interviews conducted by officers of the Fund and Mellon Investor Services, the
transfer agent of the Fund, and by Georgeson Shareholder Communications, the
proxy solicitor for the Fund. Georgeson's fee to assist in the solicitation of
proxies is estimated to be $60,000. The costs of proxy solicitation and expenses
incurred in connection with the preparation of this Proxy Statement and its
enclosures will be paid by the Fund. The Fund also will reimburse brokerage
firms and others for their expenses in forwarding solicitation material to the
beneficial owners of its shares.
THE ANNUAL REPORT OF THE FUND, INCLUDING AUDITED FINANCIAL STATEMENTS FOR THE
FISCAL YEAR ENDED JUNE 30, 2002, HAS BEEN MAILED TO SHAREHOLDERS. ADDITIONAL
COPIES ARE AVAILABLE UPON REQUEST, WITHOUT CHARGE, BY CALLING 1-800-331-1710.
THE REPORT IS ALSO VIEWABLE ONLINE AT THE FUND'S WEBSITE AT WWW.BOULDERFUNDS.NET
If the enclosed proxy is properly executed and returned by October 1, 2002 in
time to be voted at the Meeting, the Shares (as defined below) represented
thereby will be voted in accordance with the instructions marked thereon. Unless
instructions to the contrary are marked thereon, a proxy will be voted FOR the
election of the nominee for Director and FOR the other matters listed in the
accompanying Notice of the Annual Meeting of Shareholders. Any shareholder who
has given a proxy has the right to revoke it at any time prior to its exercise
either by attending the Meeting and voting his or her Shares in person or by
submitting a letter of revocation or a later-dated proxy to the Fund at the
above address prior to the date of the Meeting.
In the event that a quorum is not present at the Meeting, or in the event that a
quorum is present but sufficient votes to approve any of the proposals are not
received, the persons named as proxies may propose one or more adjournments of
the Meeting to permit further solicitation of proxies. Any such adjournment will
require the affirmative vote of a majority of those shares represented at the
Meeting in person or by proxy. If a quorum is present, the persons named as
proxies will vote those proxies which they are entitled to vote FOR any proposal
in favor of such an adjournment and will vote those proxies required to be voted
AGAINST any proposal against any such adjournment. A shareholder vote may be
taken on one or more of the proposals in the Proxy Statement prior to any such
adjournment if sufficient votes have been received for approval. Under the
By-Laws of the Fund, a quorum is constituted by the presence in person or by
proxy of the holders of one-third of the outstanding shares of the Fund entitled
to vote at the Meeting, however each proposal other than Proposal 1 will require
the presence, in person or by proxy, of the holders of a majority of the
outstanding shares of the Fund entitled to vote at the Meeting.
The Fund has one class of capital stock: common stock, par value $1.00 per share
(the "Common Stock" or the "Shares"). On the record date, August 23, 2002, there
were 5,663,892 Shares of the Fund issued and outstanding. Each Share is entitled
to one vote at the Meeting and fractional shares are entitled to proportionate
shares of one vote.
5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS. The following table sets forth
certain information regarding the beneficial ownership of the Fund's shares as
of August 23, 2002 by each person who is known by the Fund to beneficially own
5% or more of the Fund's Common Stock.
Name of Owner* Number of Shares Number of Shares Percentage
Directly Owned Beneficially Owned Beneficially Owned
--------------------------------------- -------------------- ------------------------------------------------
Ernest Horejsi Trust No. 1B 1,171,400 20.68%
Badlands Trust Company ---** 20.68%
Stewart R. Horejsi Trust No. 2 ---** 20.68%
Aggregate Shares Owned** 1,171,400 20.68%
----------------------------
* The address of each listed owner is c/o Badlands Trust Company, POB
801, 614 Broadway, Yankton, South Dakota 57078.
** Excludes shares owned by the Ernest Horejsi Trust No. 1B (the "EH
Trust"). Badlands Trust Company ("Badlands") is one of three trustees
of the EH Trust. Badlands is a trust company organized under the laws
of South Dakota and is wholly owned by the Stewart R. Horejsi Trust No.
2, an irrevocable trust organized by Stewart R. Horejsi for the benefit
of his issue. The directors of Badlands are Larry Dunlap, Stephen C.
Miller, Robert Ciciora, who is the brother of Mr. Horejsi's son-in-law
(John Ciciora), Gail G. Gubbels and Marty Jans. Badlands and its
directors disclaim beneficial ownership of shares owned by the EH
Trust. Together with Larry Dunlap and Badlands, Ms. Ciciora is a
trustee of the EH Trust and also one of the beneficiaries of 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, Ms. Ciciora and Mr. Miller each disclaim beneficial ownership of
such shares.
The EH Trust, Badlands and the Stewart R. Horejsi Trust No. 2, as well as other
Horejsi affiliated trusts and entities are collectively referred to herein as
the "Horejsi Affiliates". 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 August 23, 2002, Cede & Co., a nominee partnership of the Depository Trust
Company, held of record, but not beneficially, ___________ shares or ____% of
Common Stock outstanding of the Fund.
As of August 23, 2002, the executive officers and directors of the Fund, as a
group, owned 1,185,450 Common Shares (this amount includes the aggregate shares
of Common Stock owned by the Horejsi Affiliates set forth above), representing
20.93% of Common Shares.
6
In order that your Shares may be represented at the Meeting, you are requested
to vote on the following matters:
PROPOSAL NO. 1: ELECTION OF DIRECTOR
The Board is divided into three classes, each class having a term of three
years. Each year the term of one class will expire. The first proposal to be
considered at the Meeting is the election of one (1) Director of the Fund as
follows:
o Stephen C. Miller, Class I Director of the Fund, is being
nominated for a three year term expiring at the Fund's 2005 Annual
Meeting of Shareholders or until his successor is duly elected and
qualified.
Susan L. Ciciora and Joel W. Looney, Class II Directors of the Fund, were
elected on January 23, 2002, for a term to expire at the Fund's 2003 Annual
Meeting of Shareholders or until their successors are duly elected and
qualified. Alfred G. Aldridge, Jr. and Richard I. Barr, Class III Directors of
the Fund, were elected on January 23, 2002, for a term to expire at the Fund's
2004 Annual Meeting of Shareholders or until their successors are duly elected
and qualified.
The nominee has consented to serve as Director if elected at the Meeting. If the
designated nominee declines or otherwise become unavailable for election,
however, the proxy confers discretionary power on the persons named therein to
vote in favor of a substitute nominee or nominees.
7
INFORMATION ABOUT DIRECTORS AND OFFICERS. Set forth in the following table is
information about the nominee for election to the Board and the existing
Directors of the Fund, together with their address, age, position with the Fund,
term of office, length of time served and principal occupation during the last
five years.
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Name, Address*, Age Position, Length of Principal Occupation(s) and Other Number of Funds
Term Served, and Term Directorships held in Fund Complex
of Office During the Past Five Years Overseen by
Director
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Disinterested Directors
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ALFRED G. ALDRIDGE, JR. Director of the Fund Retired; from 1982-2002, Sales Manager of 2
BRIG. GEN. (RETIRED) since January 2002. Shamrock Foods Company; Director of the
CAL. AIR NATIONAL GUARD Current term expires Fiesta Bowl, Tempe, AZ since 1997.
Age: 65 at Annual Meeting for Director, Boulder Total Return Fund, Inc.,
2004 since 1999.
RICHARD I. BARR Director of the Fund Retired; from 1963-2001, Manager of 2
Age: 64 since January 2002. Advantage Sales and Marketing, Inc.
Current term expires Director, Boulder Total Return Fund, Inc.,
at Annual Meeting for since 1999; Director, First Financial Fund,
2004 Inc., since 2001.
JOEL W. LOONEY Director of the Fund Partner, Financial Management Group, LLC 2
Age: 40 since January, 2002. since July 1999. Director, Boulder Total
Current term expires Return Fund, Inc., since January 2001.
at Annual Meeting for
2003
Interested Directors**
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SUSAN L. CICIORA Director of the Fund Owner, Superior Interiors (interior design 2
Age: 38 since January 2002. for custom homes) since 1995; Corporate
Current term expires Secretary, Ciciora Custom Builders, LLC
at Annual Meeting for since 1995; Trustee of the Brown Trust and
2003 the EH Trust. Director, Boulder Total
Return Fund, Inc., since November 2001.
STEPHEN C. MILLER Director and Chairman President and General Counsel of Boulder 2
Age: 49 of the Board since Investment Advisers, LLC ("BIA"); Manager,
January 2002. Fund Administrative Services, LLC ("FAS");
President of the Vice President of Stewart Investment
Fund. Nominee for Advisers ("SIA"); Director, Chairman of the
term as Director Board and President of Boulder Total Return
expire at Annual Fund, Inc., since 1999. President and
Meeting for 2005 General Counsel, Horejsi, Inc. (liquidated
in 1999); General Counsel, Brown Welding
Supply, LLC (sold in 1999); Of Counsel,
Krassa & Miller, LLC since 1991.
* Unless otherwise specified, the Directors' respective addresses are c/o
Boulder Growth & Income Fund, Inc., 1680 38th Street, Suite 800,
Boulder, Colorado 80301.
** Mr. Miller is an "interested person" because he is an officer of BIA and SIA, the Fund's investment
advisers. Ms. Ciciora is an "interested person" as a result of the extent of her beneficial ownership
of Fund shares and by virtue of her indirect beneficial ownership of the BIA and FAS. See Proposal No.
2 - "Advisers and Administrator" below.
From the late 1980's until January, 2001, Mr. Looney had served, without
compensation, as one of three trustees of the Mildred Horejsi Trust, an
affiliate of the EH Trust.
The names of the executive officers of the Fund (other than Mr. Miller, who is
described above) are listed in the table below. Each officer was elected to
office by the Board at a meeting held on January 23, 2002. This table also shows
certain additional information. Each officer will hold such office until a
successor has been elected by the Board.
8
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Position, Length of
Name, Address, Age Term Served, and Term of Principal Occupation(s) and Other Directorships held
Office During the Past Five Years
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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; Employee of
Age: 39 January 2002. Appointed Flaherty & Crumrine Incorporated prior to December 31,
annually. 1998; Assistant Treasurer of Preferred Income
Management Fund Incorporated, Preferred Income Fund
Incorporated and Preferred Income Opportunity Fund
Incorporated prior to December 31, 1998.
STEPHANIE KELLEY Secretary since January Secretary, Boulder Total Return Fund, Inc., since
1680 38th Street, 2002. Appointed October 27, 2000; Assistant Secretary and Assistant
Suite 800 annually. Treasurer of various Horejsi Affiliates; employee of FAS
Boulder, CO 80301 since March 1999.
Age: 45
Set forth in the following table is the nominee for election to the Board and
the existing Directors of the Fund, together with the dollar range of equity
securities beneficially owned by each Director or nominee in the Fund as of
August 23, 2002, as well as the aggregate dollar range of equity securities in
all funds overseen or to be overseen in a family of investment companies (i.e.,
funds managed by the Advisers).
DIRECTOR OWNERSHIP OF THE FUND
Disinterested Directors and Nominees Dollar Range of Equity Aggregate Dollar Range of
Securities in the Fund Equity Securities in All Funds
in the Family of Investment
Companies
-----------------------------------------------------------------------------------------------------------------------
Alfred G. Aldridge, Jr. Under $10,000 $10,001 to $50,000
Richard I. Barr Under $10,000 Over $100,000
Joel W. Looney Under $10,000 $10,001 to $50,000
Interested Directors and Nominees
-----------------------------------------------------------------------------------------------------------------------
Susan L. Ciciora Over $100,000+ Over $100,000
Stephen C. Miller Over $100,000++ Over $100,000
+ 1,171,400 Shares of the Fund are held by the EH Trust. Accordingly, Ms.
Ciciora may be deemed to have indirect beneficial ownership of such
Shares. Ms. Ciciora disclaims all such beneficial ownership. Ms.
Ciciora directly owns 2,500 shares of the Fund.
++ Mr. Miller directly owns 5,600 shares of the Fund and indirectly owns
and controls 2,800 shares of the Fund through his membership in Erma
Miller, LLC. Mr. Miller is also a director and officer of Badlands
Trust Company. By virtue of such relationships, Mr. Miller may be
deemed to share the indirect power to vote and direct the disposition
of the Shares directly and beneficially held by EH Trust and Badlands
Trust Company. Mr. Miller disclaims beneficial ownership of such
Shares.
None of the disinterested Directors or their family members owned beneficially
or of record any securities of the Fund's advisers or any person directly or
indirectly controlling, controlled by, or under common control with the
advisers.
9
The following table sets forth certain information regarding the compensation of
the Fund's Directors for the fiscal year ended June 30, 2002. 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
executive officers of the Fund do not receive pension or retirement benefits
from the Fund. Directors receive reimbursement for travel and other out of
pocket expenses incurred in connection with Board meetings.
DIRECTOR COMPENSATION
Name of Person and Aggregate Compensation Total Compensation from the Fund
Position with the Fund from the Fund Paid to Directors and Fund Complex Paid to Directors
-----------------------------------------------------------------------------------------------------------------------
Alfred G. Aldridge, Jr., Director $6,000 $29,500 (2 funds)
Richard I. Barr, Director $6,000 $29,500 (2 funds)
Joel W. Looney, Director $6,000 $29,500 (2 funds)
Susan L. Ciciora, Director $0 $0
Stephen C. Miller, President of the $0 $0
Fund, Chairman of the Board and
Director
Prior to January 28, 2002, each Director of the Fund who was not an officer of
the Fund received a fee of $2,000 per annum plus $1,000 for each in-person
meeting, and $250 for each telephone meeting. In addition, the Audit Committee
and Nominating Committee members received an additional $250 for each committee
meeting attended. Committee chairs received an additional $375 for each
committee meeting chaired.
As of January 28, 2002, each Director of the Fund who is not a Director, officer
or employee of an investment adviser, or any of their affiliates, receives a fee
of $3,000 for each in-person meeting, and $500 for each telephone meeting,
constituting their full compensation. Each Director of the Fund is reimbursed
for travel and out-of-pocket expenses associated with attending Board and
Committee meetings. The Board held seven meetings (three of which were held by
telephone conference call) during the fiscal year ended June 30, 2002. Each
Director currently serving in such capacity attended at least 75% of the
meetings of Directors and any Committee of which he is a member. The aggregate
remuneration paid to the Directors of the Fund for acting as such during the
fiscal year ended June 30, 2002 amounted to $49,706.1
COMMITTEES OF THE BOARD OF DIRECTORS
AUDIT COMMITTEE; REPORT OF AUDIT COMMITTEE. 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 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. A copy of the Audit
Committee Charter is attached hereto as Exhibit A. The Audit Committee met three
times during the fiscal year ended June 30, 2002.
In connection with the audited financial statements as of and for the year ended
June 30, 2002 included in the Fund's Annual Report for the year ended June 30,
2002 (the "Annual Report"), at a meeting held on August 12, 2002, the Audit
Committee considered and discussed the audited financial statements with
management and the independent accountants, and discussed the audit of such
financial statements with the independent accountants.
-----------------
1 Former Directors of the Fund (i.e., prior to January 28, 2002) were Timothy J.
Ebner, Gustavo E. Gonzales, Jr., Ben H. Love , Judith L. Craven, Dr. Norman
Hackerman, John W. Lancaster and F. Robert Paulsen. Between July 1, 2001 and
December 31, 2001 such directors were paid $31,706.
10
The members of the Audit Committee are not professionally engaged in the
practice of auditing or accounting and are not employed by the Fund for
accounting, financial management or internal control. Moreover, the Audit
Committee relies on and makes no independent verification of the facts presented
to it or representations made by management or the independent accountants.
Accordingly, the Audit Committee's oversight does not provide an independent
basis to determine that management has maintained appropriate accounting and
financial reporting principles and policies, or internal controls and
procedures, designed to assure compliance with accounting standards and
applicable laws and regulations. Furthermore, the Audit Committee's
considerations and discussions referred to above do not provide assurance that
the audit of the Fund's financial statements has been carried out in accordance
with generally accepted accounting standards or that the financial statements
are presented in accordance with generally accepted accounting principles.
Based on its consideration of the audited financial statements and the
discussions referred to above with management and the independent accountants
and subject to the limitation on the responsibilities and role of the Audit
Committee set forth in the Charter and those discussed above, the Audit
Committee of the Fund recommended to the Board that the audited financial
statements be included in the Fund's Annual Report.
Submitted by the Audit Committee of the Fund's Board of Directors:
Alfred G. Aldridge, Jr.
Richard I. Barr
Joel W. Looney
INDEPENDENT ACCOUNTANTS. On July 22, 2002, the Audit Committee of the Board,
consisting of those Directors who are not "interested persons" (as defined in
the 1940 Act) selected KPMG LLP ("KPMG"), 99 High Street, Boston, Massachusetts
02110-2371, as independent accountants for the Fund for the Fund's fiscal year
ending November 30, 2002. The selection of KPMG was ratified by the entire
Board. KPMG also served as independent accountants for the Fund for the Fund's
fiscal year ending June 30, 2002. A representative of KPMG will not be present
at the Meeting but will be available by telephone and will have an opportunity
to make a statement if the representative so desires and will be available to
respond to appropriate questions.
KPMG has informed the Fund that it has no direct or indirect financial interest
in the Fund. The Horejsi Affiliates have engaged KPMG from time to time in the
past to provide various accounting, auditing and consulting services.
Ernst & Young LLP ("Ernst & Young"), 1221 McKinney Street, Suite 2400, Houston,
Texas, 77010 served as independent accountants for the Fund from April 18, 2000
until January 23, 2002. Ernst & Young resigned as independent accountant
effective as of January 23, 2002. Ernst & Young's reports on the financial
statements for the two years immediately preceding their resignation contained
no adverse opinion or disclaimer of opinion and was not qualified or modified as
to uncertainty, audit scope, or accounting principles. During the two fiscal
years immediately preceding Ernst & Young's resignation, there were no
disagreements with such accountants on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure.
Set forth below are audit fees and non-audit related fees billed to the Fund for
professional services received from KPMG for the Fund's fiscal year ended June
30, 2002. For the 12 months ended June 30, 2002, the Horejsi Affiliates paid $0
to KPMG for their services.
FINANCIAL INFORMATION SYSTEMS
AUDIT FEES DESIGN AND IMPLEMENTATION FEES ALL OTHER FEES
---------- ------------------------------ --------------
$19,000 $ 0 $ 0
The Audit Committee has considered and concluded that the provision of non-audit
services is compatible with maintaining the auditors' independence. The Audit
Committee is composed entirely of the Fund's independent Directors, consisting
of Messrs. Aldridge, Barr and Looney.
NOMINATING COMMITTEE. The Board has a Nominating Committee consisting of Messrs.
Looney, Aldridge and Barr which is responsible for considering candidates for
election to the Board in the event a position is vacated or created. The
Nominating Committee would consider recommendations by shareholders if a vacancy
were to exist. Such recommendations should be forwarded to the Secretary of the
Fund. The Nominating Committee of the Fund did not meet during the fiscal year
ended June 30, 2002. The Fund does not have a compensation committee.
11
REQUIRED VOTE. Election of Mr. Miller as Director of the Fund will require the
affirmative vote of a plurality of the votes of Common Stock cast at the Meeting
in person or by proxy on Proposal 1.
THE BOARD OF DIRECTORS, INCLUDING ALL OF THE NON-INTERESTED DIRECTORS,
RECOMMENDS THAT THE COMMON STOCK SHAREHOLDERS VOTE "FOR" THE ELECTION OF MR.
MILLER.
PROPOSAL NO. 2 : APPROVAL OR DISAPPROVAL OF A RIGHTS OFFERING
BACKGROUND AND SUMMARY OF PROPOSAL. The Board recommends that shareholders
approve a transferable rights offering (the "Proposed Offering"), the
substantive terms of which would permit shareholders to acquire one new share of
the Fund for each share held (i.e., a one-for-one rights offering) for a
subscription price equal to 95% of the lesser of net asset value ("NAV") or the
average market price2 on the expiration date of the Proposed Offering. The Board
has determined that it would be in the best interests of the Fund and the
shareholders to increase the assets of the Fund available for investment,
thereby permitting the Fund to be in a better position to more fully take
advantage of investment opportunities that may arise, and to spread Fund
expenses across a larger asset base thereby reducing the Fund's expense ratio.
The Proposed Offering seeks to reward existing shareholders by giving them the
right to purchase additional shares at a price that may be below market and/or
net asset value without incurring any commission or other transaction charges.
The distribution to shareholders of transferable rights, which themselves may
have intrinsic value, will also afford non-subscribing shareholders the
potential of receiving a cash payment upon sale of such rights, receipt of which
may be viewed as partial compensation for the possible dilution of their
interests in the Fund. See "Reasons for Conducting a Rights Offering" below.
KEY ELEMENTS OF THE PROPOSED OFFERING. Following are the key elements pursuant
to which the Proposed Offering will be conducted:
o ONE-FOR-ONE OFFERING. The Proposed Offering will give shareholders of
record the "right" to purchase one new share of the Fund for each full
share held. For example, if you own 100 shares on the announced record
date, you will receive rights entitling you to purchase 100 new shares
of the Fund. Shareholders would be able to exercise all or some of
their rights. However, shareholders who did not exercise all of their
rights would not be able to participate in the over-subscription
privilege See "Over-Subscription Privilege" below.
o TRANSFERABLE RIGHTS. The rights issued in the Proposed Offering are
expected to be traded on the NYSE and will afford non-subscribing
shareholders the option of selling their rights on the NYSE or through
a subscription agent. Selling the rights allows a non-exercising
shareholder (i.e., a shareholder who does not wish to purchase
additional shares) the ability to offset some of the dilution which
would otherwise occur. See "Dilution" below. In contrast, in a
non-transferable rights offering (i.e., an offering where the rights
cannot be traded), non-exercising shareholders would experience full
dilution. There can be no assurance that a liquid trading market will
develop for the rights or that the price at which such rights trade
will approximate the amount of dilution realized by a non-exercising
shareholder.
o SUBSCRIPTION PRICE. Under the Proposed Offering new shares will be sold
at a price equal to 95% of the lesser of (a) the NAV on the expiration
date of the Proposed Offering (the "Pricing Date") or (b) the
volume-weighted average market price on the Pricing Date and the four
immediately preceding trading days. Management believes that such a
pricing formula (versus a higher percentage or a pre-determined fixed
price) will provide an incentive to shareholders (as well as others who
might trade in the transferable rights) to participate in the Proposed
Offering.
o OVER-SUBSCRIPTION PRIVILEGE. If all of the rights initially issued are
not exercised by shareholders on the record date, any unsubscribed
shares will be offered to other record-date shareholders who have fully
exercised the rights initially issued to them and who wish to acquire
additional shares. If shares are insufficient to honor all
over-subscriptions, the available shares will be allocated pro-rata
among those who over-subscribe based on the number of rights originally
issued to them. The Horejsi Affiliates may or may not exercise their
over-subscription privilege. If the Horejsi Affiliates fully exercise
their over-subscription privilege, under certain circumstances (e.g.,
low shareholder participation in both the Proposed Offering and the
over-subscription privilege), the affiliates could substantially
increase their percentage ownership in the Fund.
-----------------------
1The "average market price" will be calculated based on the volume-weighted
average of the closing price of the Fund's shares on the NYSE on the
expiration date of the Proposed Offering and the 4 immediately preceding
trading days.
12
o OFFERING FEES AND EXPENSES. The Fund expects to incur the following
offering expenses in connection with the Proposed Offering:
Table 1
Offering Expenses
-------------------------------------------------
NYSE Initial Registration Fees $ 3,500
NYSE Initial Listing Fee $ 19,600
Printing Costs $ 12,500
Fees and Expenses of Qualification
Under State Securities Laws $ 5,000
Auditing Fees and Expenses $ 5,000
Legal Fees and Expenses $ 70,000
Subscription Agent Expenses $ 62,500
Information Agent Expenses $ 18,000
Street Account Proxy -
Direct Bill from ADP $ 8,125
Underwriter Expenses $ -
Postage and Delivery Charges $ 20,000
Miscellaneous $ 5,000
--------
TOTAL ESTIMATED COSTS $229,225
--------
Expenses for the Proposed Offering may be higher or lower than those shown
above. In addition, expenses related to the Proposed Offering will be borne
by the Fund and will reduce the net asset value of the Fund's common stock.
USE OF THE PROCEEDS. Management estimates the net proceeds of the Proposed
Offering to be approximately $31.2 million based on an estimated
Subscription Price of $5.56 per share, assuming the Proposed Offering is
fully subscribed and the expenses related to the Proposed Offering are
approximately $229,000 as discussed in "Offering Fees and Expenses" above.
The forgoing assumption, and all pro forma tables below used to illustrate
Proposal No. 2, are based on the closing price of the Fund's shares on
August 9, 2002. Accordingly, the assumptions and projections contained in
this Proxy Statement are subject to change significantly depending on
changes in market conditions for the Fund's shares and performance of the
Fund's portfolio.
13
Table 2
Impact of Rights Offering On Stock Price and Net Asset Value
Shares Currently OUtstanding 5,663,892
Shares to be Issued in Proposed Offering 5,663,892
Shares Outstanding After Proposed Offering 11,327,784
Current Net Asset Value Per Share (8/9/02) $6.82
Aggregate Net Asset Value Before
Proposed Offering based on NAV on 8/9/02 $38,627,743
Average Market Price Per Share on 8/9/02 $5.85
Subscription Price Per Share
(Based on 95% of Average Market Price) $5.56
Gross Proceeds from Proposed Offering $31,447,080
Less: Offering Expenses ($229,225)
-----------
Net Proceeds from Proposed Offering $31,247,855
-----------
Expected Aggregate Net Asset Value
After Proposed Offering $69,875,598
===========S
NAV Per Share After Proposed Offering $6.17
Pro-Forma STock Price (based on 8/9/02 Discount)* $5.29
*This price has been derived by accepting the discount at which the Fund's
shares traded on 8/9/02, to illustrate the "NAV Per Share After Proposed
Offering" of $6.17 shown above. The price (or discount) at which the Fund shares
will trade after the Proposed Offering cannot be predicted, and in fact, Fund
shares could trade at a wider discount after the Proposed Offering than has
historically been the case. THe discount could be affected by a variety of
factors other than the Proposed Offering, such as the Fund's performance or
equity market conditions generally.
Typically, closed-end funds raise additional capital in a rights
offering to invest in additional securities consistent with the fund's
investment objective and policies. Important factors for shareholders
to consider include (i) whether the Fund is fully invested with respect
to its existing assets prior to the Proposed Offering and (ii) whether
opportunities exist in the market that warrant raising and investing
additional capital. As of the date of this Proxy, the Fund is "fully
invested" in accordance with its investment objective3, that is, 96%
(as of August 9, 2002) of the Fund's assets are invested in common
stock or other equities consistent with the Fund's objective.4 The
Advisers (defined below) have indicated that, at the present time, the
market offers many attractive investment opportunities that, in some
instances, have not existed for years which, if taken advantage of,
could yield positive results to shareholders. The Advisers have
indicated that, if the Proposed Offering is implemented as contemplated
by this Proxy, there should be ample opportunities in which to invest
the proceeds of the Proposed Offering within 120 days of receipt. The
Advisers have agreed to waive one-half of any advisory fees which would
be charged against the un-invested proceeds from the Proposed Offering
until such time as 50% of the proceeds have been invested in common
stock equities, which include shares of real estate investment trusts
and investment companies, in accordance with the Fund's investment
objective.
--------------------------
1In the context of the Fund, the use of the term "fully-invested" does not
mean that 100% of the Fund's assets are invested in equities or investments
other than cash or cash equivalents (e.g., U.S. treasuries and repos).
Rather, it means that at least 90% (or such other percentage as may be
approved by the Board) is invested in equities, with the balance being kept
in ready reserve in the form of cash or cash equivalents. The "ready reserve"
gives the Advisers the flexibility to take advantage of unexpected
opportunities.
2Approximately 12% of the Fund's assets remains invested in bonds that were
purchased by the Fund's prior adviser.
14
0 TIMING OF THE PROPOSED OFFERING. Management currently anticipates
conducting the Proposed Offering prior to the end of 2002, although the
Offering could be delayed into 2003 based on then-current market
conditions. If shareholders approve the Proposed Offering, the Fund
currently intends to prepare and issue to shareholders a detailed
prospectus regarding the terms and conditions of the Proposed Offering
as soon as practicable following the Meeting.
REASONS FOR CONDUCTING THE PROPOSED OFFERING. Although there are numerous
reasons for the Fund's conducting a rights offering, Management has emphasized
two primary reasons:
1. SPREADING EXPENSES ACROSS MORE ASSETS. As a closed-end mutual fund gets
smaller, its expense ratio necessarily increases. This is because
smaller funds have fixed costs (e.g., fidelity bonds, insurance, legal,
accounting and printing costs and often fixed custody and transfer
agent fees, etc.) which are not charged in proportion to the fund's
size. As a fund gets bigger, however, these fixed expenses are spread
across a larger asset base. This is illustrated in the expense ratio
analysis below in Table 3. In the case of the Fund, since its initial
public offering in 1974, it has shrunk from its original size of $70
million to around $38 million. Management believes that, even at $70
million, the Fund lacked the critical mass to sustain itself as an
efficiently run closed-end fund. See "Effect of Proposed Offering On
Expense Ratio" below.
2. TAKING ADVANTAGE OF INVESTMENT OPPORTUNITIES. As of the date of this
Proxy, the Fund is fully invested in accordance with its investment
objective. As you might imagine, the recent slide in the stock market
has resulted in bargain prices on good companies which have not been
available during the recent past. The Proposed Offering will permit the
Fund's advisers to take advantage of such opportunities as they arise,
without having to liquidate quality Fund holdings to raise cash. When
we see an opportunity, we want to be able to take advantage of it
quickly and make a significant investment, without having to sell
current holdings in the process. Having the cash resources to
accomplish this is very important. Also, subject to then-current market
conditions, management would like to conduct the Proposed Offering
before the end of 2002 so that the Advisers have ample cash available
to take advantage of lower stock prices that typically occur toward
year-end due to investors selling portfolio holdings to recognize tax
losses.
Other reasons supporting the Proposed Offering include the following:
3. INCREASING LIQUIDITY. By conducting a rights offering, the Fund can
potentially increase its trading volume. The Fund has a very low
trading volume and float and increasing the number of shares through a
rights offering might help to increase the volume of buyers in the
market and have a positive effect on narrowing and maintaining a narrow
discount, although this, of course, cannot be guaranteed.
4. RETAINING GOOD INVESTMENTS. In a fund like BIF, which has most of its
assets invested in companies that it intends to hold long-term, there
are limits on the Fund's ability to take advantage of new, possibly
better opportunities as they may arise in the future. Rather than sell
a good company to free up cash to take advantage of these new
opportunities, the Advisers believe that shareholders are better served
by raising more cash through a rights offering. This approach in the
long-term tends to be more tax-efficient, avoiding the realization of
taxable gains.
5. REDUCED TRANSACTION COSTS. A rights offering rewards existing
shareholders with an opportunity to purchase additional shares of
common stock at a price that is below market value and net asset value
without the transaction costs that would be associated with open-market
purchases or initial public offerings (e.g., brokerage commissions and
underwriting fees).
6. MORE INFLUENCE. A rights offering permits the Fund to grow, and as it
grows, it can exert more influence in effecting changes (or preventing
changes) within the companies in which it invests.
7. INVESTING FOR CONTROL. Although investing for control is not a primary
strategy of the Fund, at those times when Management sees an
opportunity and chooses to do so, we want the Fund to be big enough and
thus have the financial wherewithal to buy the requisite controlling
shares.
8. BETTER TREATMENT FROM BROKERS. Larger funds can buy "in quantity" and
can sometimes receive better execution and lower commissions from
brokers because of their size.
15
9. IMPROVING ANALYST COVERAGE. Increasing the Fund's size may increase
analyst coverage which may in turn stimulate investor interest in the
Fund and ultimately result in narrowing and maintaining a narrow
discount.
EFFECT OF PROPOSED OFFERING ON EXPENSE RATIO. As discussed above (see "Reasons
for Conducting the Proposed Offering"), one of the primary reasons for
conducting the Proposed Offering is to make the Fund more "efficient" by
lowering the Fund's expense ratio through realizing economies of scale. The
Fund's current actual expense ratio is 2.63%5 based on actual Fund expenses as
of June 30, 2002, the Fund's fiscal year-end. This expense ratio is adjusted to
2.23% (the "Adjusted Current Ratio") to reflect elimination of "extraordinary
expenses" which Management does not believe will be recurring expenses.6 The
following Table shows the impact that the Proposed Offering should have on the
Fund's expense ratio, assuming that (i) the NAV is $6.82 per share (i.e., the
Fund's NAV on 8/9/02), (ii) shares are issued in the Proposed Offering at
discounts to NAV of between 0% and 20% (see Scenarios A through E below) and
(iii) the Proposed Offering is fully subscribed. Note that the Projected Expense
Ratio of between 1.90% and 1.94% for each discount scenario compares favorably
to the Adjusted Current Ratio of 2.23% -- a difference of between 0.30% and
0.33% per annum - representing a significant increase in operating efficiency. A
0.30% difference represents a $114,000 or $0.02 per share annual savings based
on the approximately $38 million of current net assets.
Table 3
Matrix of Expense Ratios
--------------------------------------------------------------------------------
Discount Projected
From Offering Rights Offering Total Net Expense
Scenario NAV Price Proceeds Assets Ratio
--------------------------------------------------------------------------------
A 0.0% $6.48% $36,467,131 $75,094,875 1.90%
B -5.0% $6.16 $34,632,313 $73,260,057 1.91%
C -10.0% $5.83 $32,797,496 $71,425,239 1.92%
D -15.0% $5.51 $30,962,678 $69,590,421 1.93%
E -20.0% $5.18 $29,127,860 $67,755,603 1.94%
The Administrator has agreed to reimburse expenses for the one-year period
beginning on the expiration date of the Proposed Offering to the extent
necessary to maintain the net average annualized expense ratio of the Fund at
its level on the expiration date of the Proposed Offering, excluding
extraordinary expenses. For example, if the Fund's expense ratio is 2.23% on the
expiration date of the Proposed Offering, and the actual expense ratio is
determined to be 2.35%, or a difference of 0.12%, the Administrator will
reimburse the Fund such difference. In this example, if the Fund's net assets
averaged $68.5 million during the 12-month period, the Administrator would
reimburse $82,200 to the Fund.
DILUTION. With respect to the Proposed Offering, dilution is a reduction in the
net asset value of a shareholder's shares of the Fund caused by the Fund's
issuance of new shares at a price below net asset value. Dilution also refers to
the reduction in a shareholder's percentage ownership in the Fund that would
result if the shareholder failed to exercise his rights fully. Rights offerings
are often criticized as being dilutive with respect to shareholders who do not
fully exercise their rights. Dilution (other than that related to the expenses
of the Proposed Offering) results primarily with respect to non-exercising
shareholders and is exacerbated when new shares are issued at below the
then-current NAV. In contrast, shareholders who fully exercise their rights and
over-subscribe benefit from a slight accretion to the value of their shares to
the extent the non-subscribing shareholders fail to fully exercise their rights.
A discounted offering price (e.g., 90% or 95% of market value) causes the number
of shares outstanding to increase at a rate greater than the increase in the
Fund's assets. Following is a discussion of the effect of dilution on
non-exercising, exercising and over-subscribing shareholders:
1The current actual expense ratio includes what Management views as
extraordinary expenses such as proxy solicitations, expenses of proxy fights,
excessive printing costs, etc., that would not be incurred in the ordinary
course. The current expense ratio has been adjusted to remove these
extraordinary expenses to show how the rights offering would affect expense
ratios under normal operating conditions. Notwithstanding the Advisers not
being the advisers for the Fund for the entire fiscal year, for purposes of
this analysis, the Advisers' fee and Administrator's fee are included as
currently contracted (i.e., 1.25% and 0.30% respectively).
2See Footnote 5.
16
EFFECT ON NON-EXERSING SHAREHOLDERS. Table 4(A) below shows the
dilutive effect in terms of dollars on a non-exercising shareholder who
owns 100 shares of the Fund. The column marked "Dilutive Effect on 100
Shares" is the aggregate diminution in value of 100 shares of the Fund
after the Proposed OFFERING.
TABLE 4(A)
DILUTIVE EFFECT FOR NON-EXERCISING SHAREHOLDER IN DOLLARS ON 100 SHARES
Col A Col B Col C Col D Col E Col F Col G
Subscription Shareholder's Expenses of Dilutive
Discount from Average Price* (95% of NAV Pre- Rights Offering Fund's NAV Effect on
NAV Market Price Col B) Offering (Per Share) Post-Offering 100 Shares
----------------------------------------------------------------------------------------------------------------------
5% $6.48 $6.16 $6.82 ($0.02) $6.47 ($35.27)
10% $6.14 $5.83 $6.82 ($0.02) $6.31 ($51.47)
15% $5.80 $5.51 $6.82 ($0.02) $6.14 ($67.67)
20% $5.46 $5.18 $6.82 ($0.02) $5.98 ($83.86)
In this example, since a non-exercising shareholder does not exercise
at the subscription price, he has the same number of shares before and
after the offering; thus, because the subscription price is 95% of the
market price, assuming the market price is at a discount to NAV, the
NAV of his shares after the offering will be less than before - thus
resulting in dilution.
EFFECT ON FULLY-SUBSCRIBING SHAREHOLDERS. Shareholders who fully
subscribe (i.e., purchase all shares to which they are entitled on a
1-for-1 basis) will not experience the same level of dilution as a
non-exercising shareholder. Table 4(B) below shows the effect in terms
of dollars on fully-exercising shareholders. In essence, the dilutive
effect on fully-exercising shareholders is merely their pro-rata share
of the Offering expenses. See "Offering Fees and Expenses"
above.
Table 4(B)
Dilutive Effect for Non-Exercising Shareholders in Dollars on 100 Shares
Col A Col B Col C Col D Col E Col F Col G Col H
Shareholder's
Average NAV
Subscription Shareholder's Post Offering Expenses of Fund's Dilutive
Discount from Average NAV Pre- NAV Pre- Average of Col Rights Offering NAV Post- Effect on
NAV Market Price Col B) Offering C & Col D Per Share Offering 100 Shares
------------------------------------------------------------------------------------------------------------------------------------
5% $6.48 $6.16 $6.82 $6.49 ($0.02) $6.47 (2.02)
10% $6.14 $5.83 $6.82 $6.33 ($0.02) $6.31 (2.02)
15% $5.80 $5.51 $6.82 $6.16 ($0.02) $6.14 (2.02)
20% $5.46 $5.18 $6.82 $6.00 ($0.02) $5.98 (2.02)
EFFECT ON OVER-SUBSCRIBING SHAREHOLDERS. Shareholders who
"oversubscribe" will receive most of the benefit of any dilution
realized by non-subscribing shareholders. Table 4(C) below shows the
"accretion" experienced by oversubscribing shareholders with respect to
the oversubscribed shares (i.e., with respect to the "fully subscribed"
shares, they will still experience the nominal dilution from Table 4(B)
above, that is, the dilution attributable to the Offering
expenses).
17
Table 4(C)
Beneficial Effect (Accretion) for Exercising/Over-Subscribing Shareholders
in Dollars on 100 Over-Subscribed Shares*
Col A Col B Col C Col D Col E Col F
Subscription Shareholder's
Discount from Average Price (95% of NAV Pre- Fund's NAV Accretive Effect
NAV Market Price Col B) Offering+ Post-Offering on 100 Shares
5% $6.48 $6.16 NA $6.47 $31.22
10% $6.14 $5.83 NA $6.31 $47.42
15% $5.80 $5.51 NA $6.14 $63.62
20% $5.46 $5.18 NA $5.98 $79.82
* This assumes that a shareholder owning 100 shares fully subscribes and
receives 100 new shares in the Proposed Offering. IN ADDITION, this same
shareholder elects to "over-subscribe" for any shares left un-subscribed by
non-exercising shareholders. It is not possible to predict how many
additional shares (if any) a shareholder will seek to over-subscribe as this
is dependent on numerous variables particular to the shareholder (e.g.,
number of shares held, investment objective, cash resources, etc.) and the
Proposed Offering (e.g., overall shareholder participation in the Proposed
Offering and any over-subscription entitlement). For purposes of this
example, however, it is assumed that the hypothetical shareholder
over-subscribes for 100 additional shares. The ultimate accretive effect will
depend on the actual number of shares received in the over-subscription.
+ Since the shareholder does not own the to-be-issued new shares prior to the
offering, there is no associated NAV for the to-be-issued shares prior to the
Proposed Offering. The accretion is merely the dilution experienced by the
non-exercising shareholders less the pro-rata share of the offering expenses,
less the cost of the rights if purchased on the open market.
To lessen the effect of dilution on existing Fund shareholders, Management
suggested that the Board and the Fund should take the following steps in issuing
the rights offering:
1. The Board should endorse and strongly recommend that shareholders fully
subscribe to all shares made available.
2. Ample and conspicuous disclosure should be provided to shareholders
regarding the Proposed Offering and the dilutive effect on
non-subscribing shareholders.
3. The Proposed Offering should be a "transferable" offering with the
rights trading on the NYSE. In a transferable offering, if a
shareholder does not exercise his or her rights, but sells the rights
at their intrinsic value, the shareholder should not experience
significant dilution. However, even in a transferable offering, a
failure to sell rights at or a sale below intrinsic value is likely to
result in dilution.
4. The Fund should engage an experienced and resourceful "information
agent" who will answer telephone inquiries from shareholders and use
the Fund's shareholder information to call shareholders and facilitate
participation.
5. The Board should engage an independent consultant to advise the Board
on the terms and conditions of any rights offering so as to maximize
the efficiencies to the Fund and minimize the dilutive effect to the
shareholders. See "Use of Independent Consultant" and "Board
Considerations" below.
Notwithstanding the dilutive effect of the Proposed Offering, the Board has
determined that the benefits to the Fund and its shareholders (see discussion of
"Reasons for Conducting the Proposed Offering") outweigh the dilutive effect.
See "Board Considerations" below.
DISCOUNT. Shares of closed-end funds frequently trade at a market price that is
less than the value of the net assets attributable to those shares (the
"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. Based on analysis of Herzfeld (defined
below), the Discount of a fund typically widens during a rights offering and
sometimes even before the offering begins. The Discount that may occur after a
rights offering (or in particular the Proposed Offering) is difficult to analyze
because there are so many other factors aside from merely conducting a rights
offering that influence a fund's Discount. However, Herzfeld notes that after
the expiration of a rights offering, a fund's Discount tends to gravitate back
to its range before the offering, but Herzfeld advises that there is no
empirical way to measure the effect of the rights offering on the Fund's
Discount. Nonetheless, based on research conducted, Herzfeld concluded that,
subsequent to a rights offering, there is no evidence that Discounts widen or
become persistent simply because a rights offering was conducted. For reference
we have provided the following chart which provides a graphic representation of
the Fund's Discount over the past 12 months.
18
[INSERT GRAPH OF DISCOUNT]
EFFECT OF THE PROPOSED OFFERING ON SHARE PRICE. The Proposed Offering is likely
to have an immediate adverse effect on the Fund's share price, although the
precise impact cannot be calculated. It is typical for shares of a fund to
decline precipitously soon after a transferable rights offering is announced. In
addition, there may be heavy selling pressure on the Fund's share price if
arbitrageurs buy rights that have been sold by non-exercising shareholders and
then sell Fund shares short to lock in a profit. Further, selling pressure may
continue following the expiration of the Proposed Offering as arbitrageurs and
other short-term investors sell shares acquired in the Proposed Offering.
THE ADVISERS AND ADMINISTRATOR. The Fund is co-advised by Boulder Investment
Advisers, L.L.C. ("BIA") and Stewart Investment Advisers ("SIA"). BIA and SIA
are collectively referred to as the "Advisers". The Fund's administrator is Fund
Administrative Services, LLC (the "Administrator").
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. 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 Horejsi Affiliates and other
family interests. 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 PO Box 801, Yankton, South Dakota 57078 (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 Susan Ciciora, Mr. Horejsi's daughter 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 Mr.
Horejsi and Ms. Ciciora may directly or indirectly benefit from the relationship
between the Fund and BIA.
STEWART INVESTMENT ADVISERS. SIA (or Stewart West Indies Trading Company, Ltd.
dba Stewart Investment Advisers) is a Barbados international business company,
incorporated on November 12, 1996, and is wholly owned by the Stewart West
Indies Trust, an irrevocable South Dakota trust, established by Mr. Horejsi in
1996 primarily to benefit his issue (the "West Indies Trust"), whose address is
PO Box 801, Yankton, South Dakota 57078. Mr. Horejsi is not a beneficiary under
the West Indies Trust. However, Susan Ciciora, Mr. Horejsi's daughter and one of
the Fund's "interested" directors, as well as members of her family, are
discretionary beneficiaries 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.
Prior to 1999, neither BIA nor SIA, which are registered as investment advisers
under the Investment Advisers Act of 1940, had previously served as adviser to a
registered investment company or managed assets on a discretionary or
non-discretionary basis. However, as described above, Mr. Horejsi, an employee
and investment manager of both Advisers, has extensive experience managing
common stocks for the Horejsi Affiliates and other family interests.
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 (i.e.,
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.
Stewart R. Horejsi is an employee of both BIA and SIA. He is the 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 was a
director of the Boulder Total Return Fund, Inc. until November, 2001; General
Manager, Brown Welding Supply, LLC (sold in 1999), since April 1994; Director,
Sunflower Bank (resigned); and the President or Manager of various subsidiaries
of the Horejsi Affiliates since June 1986. Mr. Horejsi has been the investment
adviser for various Horejsi Affiliates since 1982. Mr. Horejsi has been the
Director and President of the Horejsi Charitable Foundation, Inc. since 1997.
Mr. Horejsi 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.
19
FUND ADMINISTRATIVE SERVICES, LLC ("FAS"). FAS (formerly Boulder Administrative
Services, L.L.C.) 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"). 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 and, since March of
1999, to the Boulder Total Return Fund, Inc.
BENEFIT TO THE ADVISERS AND ADMINISTRATOR. The Advisers and the Administrator
will benefit from the Proposed Offering because their fees are based on the
average net assets of the Fund. See also "The Advisers and Administrator "
above. It is not possible to state precisely the amount of additional
compensation the Advisers and Administrator will receive as a result of the
Proposed Offering because the proceeds of the Proposed Offering will be invested
in additional portfolio securities which will fluctuate in value. However,
assuming all rights are exercised and that the Fund receives the maximum
proceeds of the Proposed Offering, the annual compensation to be received by the
Advisers and Administrator would be increased by approximately $443,700, based
on the Fund's NAV and share price as of 8/9/02. See Table 5 below. Two of the
Fund's Directors who voted to recommend the Proposed Offering to shareholders
are "interested persons" of the Advisers within the meaning of the 1940 Act. One
of these Directors, Susan L. Ciciora, could benefit indirectly from the Proposed
Offering because of her beneficial interest in the Advisers and the
Administrator. See "The Advisers and Administrator" above. While it was
cognizant of the benefit to the Advisers and Administrator and indirect benefit
to Ms. Ciciora, the Board nevertheless concluded that the Proposed Offering was
in the best interest of shareholders. See "Board Considerations" below.
The following Table shows the economic benefits to the Advisers and the
Administrator after the Proposed Offering, assuming approximately $31.2 million
net proceeds (i.e., after offering expenses) raised in the Offering. The table
does not reflect the impact on those benefits of the expense reimbursement
agreement by the Administrator and the initial fee waiver by the Advisers (see
"Effect of Proposed Offering on Expense Ratio" and "Use of the Proceeds"
above.
TABLE 5
NET ADVISORY AND ADMINISTRATION FEES AFTER THE PROPOSED OFFERING
Current Advisory Fee $482,847
Increase in Advisory Fee from Proposed Offering $390,598
--------
Projected Gross Advisory Fee after Proposed Offering $873,445
(Net) Current Administrative Fee* $32,367
(Net) Increase in Administrative Fee from Proposed Offering** $53,121
--------
Projected Aggregate (Net) Administrative Fee after Proposed Offering $85,489
Projected Aggregate INCREASE in Advisory AND Administrative Fee
after Proposed Offering $443,720
Projected Aggregate Advisory AND Administrative Fee after
Proposed Offering $958,933
*The "gross" Administrative Fee is $115,800 based on the Fund's total net assets
on 8/9/02 and the fee calculated at the contract rate of 0.30% of total net
assets. The "Current Administrative Fee" depicted above is net of all fees paid
to unaffiliated third-party service providers (e.g., sub-administrator,
custodian and transfer agent), some of which are fixed fees, while others are
based on the FUnd's total net assets.
**Similar to the note immediately above, the "gross" increase in the
Administration Fees attributable to the pro forma proceeds raised in the
Proposed Offering is $93,700 using the Fund's NAV and share price as of 8/9/02
and the fee calculated as indicated above (i.e., the contract rat eof 0.30% of
total net assets). The "Net Increase in Administrative Fee" depriced above is
net of fees paid to unafiliated third-party service providers.
20
FUTURE RIGHTS OFFERINGS. The Fund may, in the future and in its discretion,
choose to make additional rights offerings from time to time for a number of
shares and on terms which may or may not be similar to the Proposed Offering.
Any such future rights offering will be made in accordance with the 1940 Act.
Under the laws of Maryland, the state in which the Fund is incorporated, the
Board is authorized to approve rights offerings without obtaining shareholder
approval. However, under the 1940 Act and interpretations of the Securities and
Exchange Commission ("SEC"), since the Proposed Offering is transferable and for
a ratio of shares greater than one-for-three (i.e., one-for-one), it is
necessary for the Fund to seek and obtain shareholder approval of the Proposed
Offering. See "Required Vote" under this Proposal below. If shareholders do not
approve the Proposed Offering, the Fund may elect to conduct a rights offering
that conforms with the 1940 Act, SEC interpretations and certain other
conditions, but does not require shareholder approval, so long as the Board
determines that such offering would result in a net benefit to existing
shareholders. For example, subject to the foregoing, the Fund might conduct
either a NON-TRANSFERABLE one-for-one rights offering, or a transferable
one-for-three rights offering, without seeking shareholder approval.
TAXATION. In general, for federal income tax purposes, neither the receipt nor
the exercise of the rights by shareholders will result in taxable income to
holders of common stock, and no loss will be realized if the rights expire
without exercise. A shareholder's holding period for a share acquired upon
exercise of a right begins with the date of exercise. Generally, a shareholder's
basis for determining gain or loss upon the sale of a share acquired upon the
exercise of a right will be equal to the sum of the subscription price per share
and any servicing fee charged to the shareholder by the shareholder's broker,
bank or trust company. A shareholder's gain or loss recognized upon a sale of a
share acquired upon the exercise of a right will be capital gain or loss
(assuming the share is held as a capital asset at the time of sale) and will be
long-term capital gain or loss if the share has been held at the time of sale
for more than one year.
A more complete discussion of the tax consequences of a rights offering will be
contained in the prospectus describing the offering.
USE OF INDEPENDENT CONSULTANT. The Board engaged Thomas J. Herzfeld, Inc. as an
independent consultant to assess the viability and appropriateness of the
Proposed Offering. See "Board Considerations" below.
BOARD CONSIDERATIONS. The Board, in making its determination to recommend the
Proposed Offering to shareholders for approval, considered the information and
analysis provided by Management, the Advisers, as well as other information made
available to it regarding the Proposed Offering. On April 26, 2002, at a
regularly scheduled meeting of the Board, Management distributed an extensive
memorandum and research materials regarding an overview of rights offerings as
well as the legal, practical and financial issues that the Board must consider
in coming to a decision to approve a rights offering or to recommend such a
proposal to shareholders. At this meeting, although the Board considered the
viability of a rights offering for the Fund in general terms, it nonetheless
resolved to have Management supplement and expand its analysis and present a
formal and more detailed proposal for a rights offering at the next scheduled
meeting. At the April meeting, the independent members of the Board (the
"Independent Directors") also resolved to engage an independent and
disinterested consultant to advise the Board, and particularly the Independent
Directors, on the viability and appropriateness of a rights offering for the
Fund. After this meeting, a representative of the Independent Directors
interviewed three qualified financial consultants with experience in the
closed-end fund industry and, after consultation with and unanimous agreement
among the other Independent Directors, the Independent Directors selected and
engaged Thomas J. Herzfeld, Inc. ("Herzfeld"), a recognized expert in the field
of closed-end investment companies, to prepare an extensive analysis of rights
offerings and their viability and appropriateness vis-a-vis the Fund.
Thereafter, at the Board's regularly scheduled meeting on July 22, 2002,
Management presented the additional requested analysis and a formal proposal for
the Proposed Offering. That proposal recommended a 1-for-1 transferable rights
offering at a price of 90% of the lesser of (a) NAV on the expiration date or
(b) the average market price on the Pricing Date. Also, at the request of
counsel for the Independent Directors, Management provided additional requested
research, analysis and background material regarding the Proposed Offering.
Prior to the July meeting, representatives of Herzfeld presented a written
analysis of rights offerings and specific recommendations regarding the Proposed
Offering. At the July meeting representatives of Herzfeld made an oral
presentation of their materials, entertained questions from the Board,
Management, the Advisers, the Fund's counsel and counsel for the Independent
Directors, and met privately with the Independent Directors, their counsel and
the Fund's counsel to discuss the Proposed Offering. Herzfeld advised the Board
that in its view a "well-structured and well-timed rights offering can be a good
way for BIF to raise capital at this time, if this additional capital will allow
the fund to take advantage of investment opportunities, reduce expenses, and in
general help the fund achieve its particular long-term investment objectives."
Following those discussions, the Independent Directors determined that the
pricing of the Proposed Offering should be changed from 90% of the lower of NAV
or market price to 95% of the lower of NAV or market price, taking into account
the lower dilution likely to result from the higher price and historical
information supplied by Herzfeld supporting a conclusion that the higher price
should not jeopardize the success of the rights offering.
21
At the July meeting, upon reviewing all information the Board considered
relevant and necessary, the Board determined to recommend the Proposed Offering
to shareholders for approval at the next annual meeting of shareholders. The
Independent Directors also conditioned their approval on (1) the Advisers
agreeing to waive one-half of any advisory fees which would be charged against
the un-invested proceeds from the Proposed Offering until such time as 50% of
the proceeds have been invested in common stock equities in accordance with the
Fund's investment objective and (2) the Administrator's agreeing to cap the
Fund's expense ratio for the one-year period following the Proposed Offering at
the level in effect on the expiration of the Proposed Offering, excluding
extraordinary expenses. The Advisers and the Administrator agreed to both of
these conditions.
In particular, the Board considered the following factors and issues:
1. The existence and size of any current discount between the Fund's
market price and NAV and the risk of increasing the discount both
during and after the Proposed Offering.
2. The extent of any dilution for non-participating shareholders.
3. The basis of the offering (i.e., the number of rights needed to
purchase one share).
4. The size of the offering in relation to the number of shares
outstanding.
5. The use to be made of the proceeds from the offering and the potential
return to shareholders therefrom.
6. Whether to implement a transferable or non-transferable offering and
whether a market will exist for any transferable rights.
7. The extent to which the Horejsi Affiliates would benefit from a rights
offering that was under-subscribed and how best to protect
non-subscribing shareholders in such cases. See "What Will the Horejsi
Affiliates Do in the Proposed Offering" below.
8. The advantages and disadvantages of using an underwriter in connection
with a rights offering.
9. How the price, and other terms, for the rights offering will be
determined.
10. The affect that a rights offering might have on the overall fees paid
to the Advisers, the Administrator and their affiliates.
11. The costs of the offering.
12. The Fund's current expense ratio and the anticipated reduction of the
expense ratio as a result of a well-subscribed offering.
13. The potential impact of the rights offering on the liquidity of the
trading market for shares of the Fund.
14. The Advisers' opinions that the offering would make new funds available
so that the Fund could take advantage of investment opportunities
without having to sell portfolio holdings that the Advisers believe
should be retained.
After due consideration, the Board, including the non-interested Directors,
unanimously approved a resolution recommending the Proposed Offering to the
Fund's shareholders. The Horejsi Affiliates intend to vote in favor of the
Proposed Offering (i.e., Proposal No. 2).
WHAT WILL THE HOREJSI AFFILATES DO IN THE PROPOSED OFFERING. The efficiency of a
rights offering (i.e., ratio of offering expenses to the dollars raised) and its
success or failure depends primarily on significant shareholder participation in
the offering. Since the Horejsi Affiliates own such a large percentage of the
Fund (20.68% as of the date of this Proxy), shareholders should be aware of
whether they intend to fully exercise their rights. If the Horejsi Affiliates
elected not to fully exercise their rights, and other shareholders failed to
subscribe for the unsubscribed shares, there could be significantly less cash
raised, thus undermining one of the primary rationales for the Proposed Offering
(e.g., to spread Fund expenses over a larger asset base and reduce its expense
ratio). The Horejsi Affiliates have indicated their intention to fully exercise
their rights in the Proposed Offering. If the Horejsi Affiliates fully exercise
their over-subscription privilege, under certain circumstances (e.g., low
shareholder participation in both the Proposed Offering and the
over-subscription privilege), the affiliates could substantially increase their
percentage ownership in the Fund.
22
REQUIRED VOTES. Under the Investment Company Act of 1940 (the "1940 Act"),
approval of Proposal No. 2 requires the affirmative vote of a majority of the
Fund's common shareholders, on the Record Date, such majority to be based on the
number of shareholders rather than the amount of the Fund's voting securities.
In addition, to assure that the Proposed Offering has widespread shareholder
support, the Board has endorsed Proposal No. 2 on the condition that Proposal
No. 2 also receives the approval of an absolute majority of the outstanding
shares of the Fund.
Voting in favor of Proposal No. 2 does not give rise to an obligation for
shareholders to participate in any rights offering.
THE BOARD OF DIRECTORS, INCLUDING ALL OF THE NON-INTERESTED DIRECTORS,
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" PROPOSAL NO. 2.
PROPOSAL NO. 3 APPROVAL OR DISAPPROVAL OF AN AMENDMENT TO THE FUND'S CHARTER
TO PERMIT THE BOARD, WITHOUT SHAREHOLDER APPROVAL, TO INCREASE
OR DECREASE THE FUND'S AUTHORIZED CAPITAL
BACKGROUND AND SUMMARY OF PROPOSAL. The Board, including the Independent
Directors, recommends that shareholders vote in favor of a proposal to amend the
Fund's charter to permit the Board, without shareholder approval, to increase or
decrease the Fund's authorized capital. Currently, 10 million shares, all
designated as Common Stock, have been authorized.
Approval of this Proposal is needed to effectuate the Proposed Offering
discussed in Proposal No. 2 above so as to permit the issuance of the new shares
contemplated by the Proposed Offering. The Fund has issued 5.6 million shares
and contemplates issuing an equal number of shares in the Proposed Offering, the
aggregate of which would exceed the 10 million shares available. Similarly, if
Proposal No. 2 is not approved by shareholders, but the Board subsequently
resolves to conduct a rights offering that does not require shareholder
approval, this Proposal would permit the requisite new shares to be authorized
and issued. If approved, this change would permit the Board to react quickly,
should the need arise, if the Fund were to issue additional shares and the
number of shares available for issuance were less than the amount required. If
this Proposal is not approved, a one-for-one offering (e.g., that contemplated
by Proposal No. 2) could not be consummated.
The Board believes that this change gives the Board the flexibility to structure
the Fund's capital in a way that benefits the common stockholders. The full text
of the proposed amendments to the charter is attached (see Article FIRST in
Exhibit B).
REQUIRED VOTE. Approval of this Proposal requires the affirmative vote of the
holders of more than 50% of the outstanding common shares entitled to vote.
THE BOARD OF DIRECTORS, INCLUDING ALL OF THE NON-INTERESTED DIRECTORS,
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" PROPOSAL NO. 3.
PROPOSAL NO. 4 APPROVAL OR DISAPPROVAL OF AN AMENDMENT TO THE FUND'S CHARTER
TO PERMIT THE ISSUANCE OF PREFERRED STOCK
BACKGROUND AND SUMMARY OF PROPOSAL. The Board, including the Independent
Directors, recommends that shareholders vote in favor of a proposal to amend the
Fund's charter to permit the Fund to issue preferred stock. More specifically,
the amendment would permit the Board to classify or reclassify un-issued shares
of common stock as part of an issuance of preferred stock.
As amended, the charter would give the Fund broad flexibility to leverage its
common stock using preferred stock. The Board has discussed from time to time
leveraging the Fund through borrowing or the issuance of preferred stock. The
Board believes that leverage could be appropriate and could benefit the Fund and
its shareholders under certain circumstances, but has not determined to issue
preferred stock at this time. It may be more advantageous to leverage through
issuing preferred stock rather than borrowing, depending on cost and other
factors. Consequently, the Board is recommending the charter change in order to
be able to take advantage of whichever approach makes most sense for the Fund at
the particular time.
23
Leveraging by the Fund either through the issuance of preferred stock or debt
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 balance of the Fund's leverage
could be fixed, the Fund's assets may change in value during the time a
preferred stock or debt security is outstanding, thus increasing exposure to
capital risk. To the extent the return derived from the assets obtained with the
proceeds from a preferred stock or debt issuance exceeds the dividends or
interest and other expenses that the Fund will have to pay, the Fund's net
return will be greater than if leverage was not used. Conversely, however, if
the return from the proceeds obtained from a preferred stock or debt issuance is
not sufficient to cover the cost of leverage, the net return of the Fund will be
less than if leverage was not used, and therefore the amount available for
distribution to the Fund's common stock shareholders as dividends will be
reduced.
Related to, but not conditioned on the approval of this Proposal, is Proposal
No. 3 which would allow the Fund, by Board action and without the approval of
shareholders, to increase its authorized capital in the event that the 10
million shares currently authorized have already been issued. If approved, this
Proposal and Proposal No. 3 would permit the Board to react quickly, should the
need arise, if the Fund were to issue additional shares and the number of shares
available for issuance were less than the amount required.
The Board believes that these changes give the Board the flexibility to
structure the Fund's capital in a way that benefits the common stockholders. The
full text of the proposed amendments to the charter is attached (see Article
FIRST in Exhibit B).
REQUIRED VOTE. Approval of this Proposal requires the affirmative vote of the
holders of more than 50% of the outstanding common shares entitled to vote.
THE BOARD OF DIRECTORS, INCLUDING ALL OF THE NON-INTERESTED DIRECTORS,
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" PROPOSAL NO. 4.
PROPOSAL NO. 5 APPROVAL OR DISAPPROVAL OF AN AMENDMENT TO THE FUND'S CHARTER TO
PERMIT THE INVOLUNTARY REDEMPTION OF HOLDERS OF 100 OR FEWER
SHARES OF COMMON STOCK
BACKGROUND AND SUMMARY OF PROPOSAL. The Board, including the Independent
Directors, have approved an amendment to the Fund's charter to permit the Fund,
upon notice to the affected shareholders, to involuntarily redeem all of the
shares of common stock held by a shareholder holding of record 100 or fewer
shares of common stock of the Fund. As of March 1, 2002, the Fund had 495
shareholders of record holding 100 or fewer shares. Management has advised the
Board that significant savings would be realized (in terms of solicitation costs
and printing and mailing costs for shareholder reports, proxy statements and
other Fund information) if these small shareholders were redeemed. In addition,
such a redemption would permit redeemed shareholders to receive the full market
value for their shares by avoiding brokerage commissions and premiums typically
paid for small or odd-lot transactions. The reduction in these expenses, and the
savings realized by redeemed shareholders, would benefit all Fund shareholders.
If the amendment is approved, small shareholders would be redeemed at a price
equal to the lesser of (i) the net asset value of each share (or fraction
thereof) to be redeemed determined in accordance with the 1940 Act or (ii) the
market value of each share (or fraction thereof) to be redeemed, which shall be
the closing price for the shares of the Fund's common stock on the NYSE,
determined in each case as of the close of regular trading on the NYSE on the
date on which the redemption is effected. Payments to shareholders will be made
in cash. All shares held by a shareholder will be redeemed if any are redeemed.
In view of the savings to be realized by the Fund as a whole, the transaction
cost savings to the redeemed shareholders and the fairness of the price to be
paid, the Board determined that this amendment is in the best interests of the
Fund and its shareholders. The full text of the proposed amendment to the
charter is attached (see Article SECOND in Exhibit B).
24
REQUIRED VOTE. Approval of this Proposal requires the affirmative vote of the
holders of more than 50% of the outstanding common shares entitled to vote.
THE BOARD OF DIRECTORS, INCLUDING ALL OF THE NON-INTERESTED DIRECTORS,
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" PROPOSAL NO. 5.
SUBMISSION OF SHAREHOLDER PROPOSALS
All proposals by shareholders of the Fund that are intended to be
presented at the Fund's next Annual Meeting of Shareholders to be held in 2003
must be received by the Fund for consideration for inclusion in the Fund's proxy
statement relating to the meeting no later than November 1, 2002.
ADDITIONAL INFORMATION
COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934.
Section 16(a) of the 1934 Act requires the Fund's Directors and officers,
certain persons affiliated with the Fund's investment advisers, and persons who
own more than 10% of a registered class of the Fund's securities, to file
reports of ownership and changes of ownership with the SEC and the New York
Stock Exchange. Directors, officers and greater-than-10% shareholders are
required by SEC regulations to furnish the Fund with copies of all Section 16(a)
forms they file. Based solely upon the Fund's review of the copies of such forms
it receives and written representations from certain of such persons, the Fund
believes that through the date hereof all such filing requirements applicable to
such persons were complied with.
BROKER NON-VOTES AND ABSTENTIONS. A proxy which is properly executed
and returned accompanied by instructions to withhold authority to vote
represents a broker "non-vote" (i.e., shares held by brokers or nominees as to
which (i) instructions have not been received from the beneficial owners or the
persons entitled to vote and (ii) the broker or nominee does not have
discretionary voting power on a particular matter). Proxies that reflect
abstentions or broker non-votes (collectively "abstentions") will be counted as
shares that are present and entitled to vote on the matter for purposes of
determining the presence of a quorum. Under Maryland law, abstentions do not
constitute a vote "for" or "against" a matter and will be disregarded in
determining the "votes cast" on an issue.
OTHER MATTERS TO COME BEFORE THE MEETING
The Fund does not intend to present any other business at the Meeting,
nor are they aware that any shareholder intends to do so. If, however, any other
matters are properly brought before the Meeting, the persons named in the
accompanying form of proxy will vote thereon in accordance with their judgment.
--------------------------------------------------------------------------------
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT
EXPECT TO ATTEND THE MEETING ARE THEREFORE URGED TO COMPLETE, SIGN, DATE AND
RETURN ALL PROXY CARDS AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
--------------------------------------------------------------------------------
25
Exhibit A
BOULDER GROWTH & INCOME FUND, INC.
AUDIT COMMITTEE CHARTER
1. The Audit Committee shall be composed entirely of directors who are not
"interested persons" of the Fund within the meaning of the Investment Company
Act of 1940 ("independent directors"). The Audit Committee Chairman shall be
selected by the members of the Committee. The Audit Committee shall have at
least three members. The Chairman of the Committee must have accounting or
related financial management expertise.
2. The purposes of the Audit Committee are:
(a) to oversee the Fund's accounting and financial reporting policies
and practices, its internal controls and, as appropriate, the internal controls
of certain service providers;
(b) to oversee the quality and objectivity of the Fund's financial
statements and the independent audit thereof; and
(c) to act as a liaison between the Fund's independent auditors and
the full Board of Directors.
The function of the Audit Committee is oversight; it is management's
responsibility to maintain appropriate systems for accounting and internal
control, and it is the responsibility of the Fund's independent auditors to plan
and carry out a proper audit.
3. To carry out its purposes, the Audit Committee shall have the following
duties and powers:
(a) to recommend the selection, retention or termination of auditors
and, in connection therewith, to evaluate the independence of the auditors,
including whether the auditors provide any consulting services to any service
provider, and to receive the auditors' specific representations as to their
independence at least annually;
(b) to meet with the Fund's independent auditors, including private
meetings, as necessary (i) to review the arrangements for and scope of the
annual audit and any special audits; (ii) to discuss any matters of concern
relating to the Fund's financial statements, including any adjustments to such
statements recommended by the auditors, or other results of said audit(s); (iii)
to consider the auditors' comments with respect to the acceptability and
appropriateness of the Fund's financial reporting policies, procedures and
internal accounting controls, and management's responses thereto; and (iv) to
review the form of opinion the auditors propose to render to the Board and
shareholders;
(c) to consider the effect upon the Fund of any changes in accounting
principles or practices proposed by management or the auditors, and to consider,
in consultation with management and the Fund's independent auditors, any
significant changes to the Fund's tax accounting policies, including those
pertaining to its qualification as a regulated investment company under the
Internal Revenue Code;
(d) to review and approve the fees charged by the auditors for audit
and non-audit services;
(e) to investigate any improprieties or suspected improprieties in
fund operations;
(f) to review the findings made in any regulatory examinations of the
Fund and consult with management on appropriate responses;
(g) to review any violations of the Code of Ethics for the Fund and
its advisers and report the Committee's findings to the full Board with
recommendations for appropriate action;
(h) to oversee the Fund's compliance with 1940 Act asset coverage
tests and other tests under applicable guidelines and restrictions related to
senior securities issued, or debt incurred, by the Fund; and
(i) to report its activities to the full Board on a regular basis and
to make such recommendations with respect to the above and other matters as the
Committee may deem necessary or appropriate.
4. The Fund's independent auditors are ultimately accountable to the Board
of Directors of the Fund and the Audit Committee thereof, as representatives of
the shareholders of the Fund, and the Board of Directors and the Audit Committee
have the ultimate authority and responsibility to select, evaluate and, where
appropriate, replace the independent auditors (as well as to nominate the
independent auditors to be proposed for shareholder approval, if necessary). The
Committee will ensure that the Fund's independent auditors submit to the Audit
Committee, on a periodic basis, a formal written statement delineating all
relationships between the independent auditors and the Fund and its service
providers. The Committee will actively engage in a dialogue with the Fund's
independent auditors with respect to any disclosed relationships or services
that may impact the objectivity and independence of the independent auditors,
and will consider recommending that appropriate action be taken by the Board of
Directors to ensure the independence of the independent auditors.
26
5. The Committee shall meet at least twice annually, which shall include
separate executive sessions as the Committee may deem appropriate, and is
empowered to hold special meetings as circumstances require.
6. The Committee shall regularly meet with the Treasurer of the Fund and
with internal auditors, if any, for the Fund's advisers and/or administrator to
review and discuss matters relevant to the Committee's duties and
responsibilities.
7. The Committee shall have the resources and authority appropriate to
discharge its responsibilities, including the authority to retain special
counsel and other experts or consultants at the expense of the Fund. The
Committee shall also have the authority to seek information, data and services
from management in order to carry out its responsibilities.
8. The Committee shall be responsible for reviewing any required description
of the Committee in the Fund's annual reports or proxy statements.
9. The Committee will periodically assess the independence of its members.
10. The Committee shall review this Charter at least annually and recommend
any changes to the full Board of Directors.
Adopted: January 23, 2002
27
Exhibit B
BOULDER GROWTH & INCOME FUND, INC.
ARTICLES OF AMENDMENT
Boulder Growth & Income Fund, Inc., a Maryland corporation with its
principal office in Baltimore, Maryland (hereinafter called the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: The charter of the Corporation is hereby amended by amending the
current provisions of Article FIFTH of the Articles of Incorporation to read as
follows:
FIFTH: (a) The total number of shares of stock that
the Corporation shall have authority to issue is ten million
(10,000,000) shares, all initially designated Common Stock, of the par
value of One Dollar ($1.00) each and of the aggregate par value of Ten
Million Dollars ($10,000,000). The Board of Directors, with the
approval of a majority of the entire Board, and without action by the
stockholders, may amend the charter to increase or decrease the
aggregate number of shares of stock or the number of shares of stock of
any class or series that the Corporation has authority to issue. The
Board of Directors of the Corporation is also authorized to classify or
to reclassify from time to time any unissued shares of stock of the
Corporation, whether now or hereafter authorized, by setting, changing
or eliminating the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications, or
terms and conditions of redemption of the stock.
SECOND: The charter of the Corporation is further amended by adding an
additional paragraph to Article FIFTH of the Articles of Incorporation, as
amended in Articles FIRST above, as follows:
(b) The term "Minimum Number" when used herein shall mean ten
shares of Common Stock of the Corporation, unless otherwise fixed at a
higher or lower number by the Board of Directors from time to time;
provided, however, that the Minimum Number may not in any event exceed
one hundred shares of Common Stock.
(i) notwithstanding any other provision of the
charter of the Corporation, if the number of shares of Common Stock of
the Corporation held by a stockholder shall be less than the Minimum
Number then in effect, the Corporation, at its option, may redeem all
of the shares of Common Stock held by the stockholder upon notice given
to the stockholder in accordance with subparagraph (b)(ii) below, to
the extent that the Corporation may lawfully effect such redemption
under the laws of the State of Maryland.
(ii) The notice referred to in subparagraph (b)(i)
above shall be in writing and personally delivered to the stockholder
or deposited in the United States mail at least thirty days (or such
other number of days as may be specified from time to time by the Board
of Directors) prior to the redemption. If mailed, the notice shall be
addressed to the stockholder at his or her post office address as shown
on the books of the Corporation and sent by first-class mail, postage
prepaid.
(iii) The price for each share (or fraction thereof)
of Common Stock acquired by the Corporation pursuant to this paragraph
(b) of Article FIFTH shall be the lesser of (i) the net asset value of
such share (or fraction thereof) determined in accordance with the
Investment Company Act of 1940, as amended, or (ii) its market value,
which shall be the closing price for the shares of the Corporation's
Common Stock on the New York Stock Exchange ("NYSE") (or if it is not
then listed on the NYSE on such other stock exchange on which the
Common Stock shall then be listed), determined in each case as of the
close of regular trading on the NYSE (or such other exchange) on the
date on which the redemption is effected pursuant to this paragraph (b)
of Article FIFTH (or if no closing price is reported on that date, then
the closing price on the next preceding date on which there is a
closing price).
28
(iv) Payment by the Corporation for shares of Common
Stock of the Corporation redeemed pursuant to this paragraph (b) of
Article FIFTH shall be made by the Corporation in cash, out of the
funds legally available therefor.
THIRD: The amendments to the charter of the Corporation set
forth in these Articles of Amendment were advised by the Board of Directors and
approved by the stockholders. The amendments do not increase the authorized
stock of the Corporation or the aggregate par value thereof.
IN WITNESS WHEREOF, Boulder Growth & Income Fund, Inc. has
caused these presents to be signed in its name and on its behalf by its
President and witnessed by its Secretary as of , 2002. The undersigned President
of Boulder Growth & Income Fund, Inc., hereby acknowledges in the name and on
behalf of the Corporation the foregoing Articles of Amendment to be the
corporate act of the Corporation and further certifies that to the best of his
knowledge, information and belief, the matters and facts set forth therein with
respect to the approval thereof are true in all material respects, under
penalties of perjury.
WITNESS: BOULDER GROWTH & INCOME FUND,
INC.
By:
-------------------------------------- --------------------------------
Stephanie Kelley, Secretary Stephen C. Miller, President
29
PROXY
BOULDER GROWTH & INCOME FUND, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned holder of shares of Common Stock of Boulder Growth & Income
Fund, Inc., a Maryland corporation (the "Fund"), hereby appoints Stephen C.
Miller, Carl D. Johns, and Thomas N. Calabria, attorneys and proxies for the
undersigned, with full powers of substitution and revocation, to represent the
undersigned and to vote on behalf of the undersigned all shares of Common Stock,
which the undersigned is entitled to vote at the Annual Meeting of Shareholders
of the Fund to be held at Marriott Residence Inn, 3030 Center Green Drive,
Boulder, Colorado 80301 at 10:00 a.m. Mountain Daylight Time, on October 1,
2002, and any adjournments thereof. The undersigned hereby acknowledges receipt
of the Notice of Annual Meeting and Proxy Statement and hereby instructs said
attorneys and proxies to vote said shares as indicated hereon. In their
discretion, the proxies are authorized to vote upon such other business as may
properly come before the Meeting. A majority of the proxies present and acting
at the Annual Meeting in person or by substitute (or, if only one shall be so
present, then that one) shall have and may exercise all of the power and
authority of said proxies hereunder. The undersigned hereby revokes any proxy
previously given.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
30
Please indicate your vote by an "X" in the appropriate box below.
THIS PROXY, IF PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
ELECTION OF THE NOMINEE AS DIRECTOR AND FOR PROPOSALS 2, 3, 4 AND 5.
PLEASE REFER TO THE PROXY STATEMENT FOR A DISCUSSION OF THE PROPOSALS.
1. Election of Director.
NOMINEES: Stephen C. Miller
FOR ____ WITHHELD ____
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" ELECTION OF
STEPHEN C. MILLER AS CLASS I DIRECTOR OF THE FUND.
2. To approve or disapprove a transferable rights offering.
FOR ____ AGAINST ____ ABSTAIN ____
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
TRANSFERABLE RIGHTS OFFERING.
3. To approve or disapprove an amendment to the Fund's charter to permit
the Board, without shareholder approval, to increase or decrease the
Fund's authorized capital.
FOR ____ AGAINST ____ ABSTAIN ____
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE PROPOSED
AMENDMENT TO THE FUND'S CHARTER TO PERMIT THE BOARD, WITHOUT SHAREHOLDER
APPROVAL, TO INCREASE OR DECREASE THE FUND'S AUTHORIZED CAPITAL.
4. To approve or disapprove an amendment to the Fund's charter to permit
the issuance of preferred stock.
FOR ____ AGAINST ____ ABSTAIN ____
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE PROPOSED
AMENDMENT TO THE FUND'S CHARTER TO PERMIT THE ISSUANCE OF PREFERRED STOCK.
5. To approve or disapprove an amendment to the Fund's charter to permit
the involuntary redemption of shareholders of 100 or fewer shares of
common stock.
FOR ____ AGAINST ____ ABSTAIN ____
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE PROPOSED
AMENDMENT TO THE FUND'S CHARTER TO PERMIT THE INVOLUNTARY REDEMPTION OF
SHAREHOLDERS OF 100 OR FEWER SHARES OF COMMON STOCK.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT ____
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
NOTE: Please sign exactly as your name appears on this Proxy. If joint owners,
EITHER may sign this Proxy. When signing as attorney, executor, administrator,
trustee, guardian or corporate officer, please give your full title.
Signature:
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Date:
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Signature:
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Date:
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