SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec. 240.14a-12
USLIFE INCOME FUND, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transactions
applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how
it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
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4) Date Filed:
USLIFE INCOME FUND, INC. 1680 38TH STREET, SUITE 800
BOULDER, COLORADO 80301
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on April 26, 2002
To the Shareholders:
Notice is hereby given that a Special Meeting of Shareholders of USLife
Income Fund, Inc. (the "Fund"), a Maryland corporation, will be held at the
Doubletree La Posada Resort, 4949 E. Lincoln Dr., Scottsdale, Arizona at 9:00
a.m. Mountain Standard Time, on April 26, 2002, for the following purposes:
1. To approve or disapprove the proposed Investment Advisory Agreement with
Boulder Investment Advisers, L.L.C. ("BIA") (Proposal 1).
2. To approve or disapprove the proposed Investment Advisory Agreement with
Stewart Investment Advisers ("SIA") (Proposal 2).
3. To approve or disapprove a change of the Fund's investment objective to
total return (Proposal 3).
4. To approve or disapprove changing the Fund's classification and related
fundamental investment restriction to make the Fund a non-diversified
investment company (Proposal 4).
5. To approve or disapprove an amendment to the Fund's fundamental investment
restriction regarding borrowing (Proposal 5).
6. To approve or disapprove an amendment to the Fund's fundamental investment
restriction regarding the pledging of assets (Proposal 6).
7. To approve or disapprove an amendment to the Fund's fundamental investment
restriction regarding the issuance of senior securities (Proposal 7).
8. To approve or disapprove an amendment to the Fund's fundamental investment
restriction regarding investment in real estate, real estate investment
trusts ("REITs") and other real estate securities (Proposal 8).
9. To approve or disapprove the deletion of the Fund's fundamental investment
restriction regarding the ability to hold greater than 5% in one issuer
(Proposal 9).
10. 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 March
4, 2002 as the record date for the determination of shareholders of the Fund
entitled to notice of and to vote at the Special Meeting.
By Order of the Board of Directors,
/s/ Stephanie Kelley
STEPHANIE KELLEY
Secretary
March 11, 2002
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE SPECIAL MEETING 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.
USLIFE INCOME FUND, INC.
QUESTIONS AND ANSWERS REGARDING THIS PROXY
WHAT IS CHANGING IN THE FUND?
The Fund is proposing to move in a new direction--changing its investment
advisers, its investment objective and certain investment policies.
HOW DOES THE BOARD RECOMMEND I VOTE?
Your Board of Directors unanimously recommends that you vote in favor of
each proposal.
WHAT IS THE FUND'S PROPOSED NEW OBJECTIVE?
Total return. Total return will be comprised of long-term capital
appreciation from investment in common stocks, and income from both fixed-income
(bonds) and equity securities.
WHAT DOES THE PROPOSED CHANGE IN OBJECTIVE MEAN FOR THE FUND?
By changing the Fund's objective to "total return", we will be able to
broaden our range of investments and, in particular, will have the ability to
invest in common stocks. The Board believes that increasing the portion of the
Fund's assets invested in common stocks could result in higher after tax returns
to shareholders over the long term when compared to income derived from a
portfolio made up of purely fixed income securities. Historically, common stocks
have outperformed fixed income investments in all but a few years. By owning
common stocks of quality companies, holders have the potential to participate in
the profits of the companies, while owners of fixed income portfolios are
limited in their upside potential. Nonetheless, bonds and other fixed income
securities provide a good source of steady income and the Fund may continue to
invest in such instruments so long as their total returns remain attractive, in
the opinion of Boulder Investment Advisers, L.L.C. and Stewart Investment
Advisers (collectively, the "Proposed Advisers"), relative to the rest of the
investment universe. The allocation of the Fund's investments between common
stocks and fixed income securities will vary over time, and there is no minimum
or maximum percentage of assets that will be committed to either type of
investment.
To reflect the change in objective and policies, the Fund's name will be
changed to Boulder Growth & Income Fund, Inc. Its NYSE ticker symbol will change
to "BIF".
WHO ARE THE FUND'S PROPOSED NEW INVESTMENT ADVISERS?
The Proposed Advisers, Boulder Investment Advisers, L.L.C. ("BIA") and
Stewart Investment Advisers ("SIA") will be the Fund's co-investment advisers.
Both BIA and SIA are controlled by trusts and entities that are affiliated with
the family of Stewart R. Horejsi. Mr. Horejsi will be the Fund's primary
portfolio manager. The Ernest Horejsi Trust No. 1B, a trust also affiliated with
the Horejsi family (the "Trust"), owns 20.68% of the Fund's outstanding common
stock. The Trust and the other entities affiliated with the Horejsi family are
often referred to in this proxy as the "Horejsi Group".
BIA and SIA began providing advisory services to the Fund on an interim
basis beginning on January 23, 2002, following the resignation of the Fund's
then investment adviser, Variable Annuity Life Insurance Company ("VALIC").
2
WHAT INVESTMENT EXPERIENCE DO THE PROPOSED ADVISERS AND MR. HOREJSI HAVE?
Mr. Horejsi is the primary portfolio manager for both Proposed Advisers.
The Proposed Advisers have managed the Boulder Total Return Fund, Inc. ("BTF")
since August 1999. BTF is a closed-end registered investment company traded on
the NYSE under the ticker BTF. BTF has an investment objective of "total return"
and has approximately $250 million of total assets. When the Board of Directors
approved and resolved to recommend the Proposed Advisers and a change in
investment objective to shareholders, the Board based its recommendation in
large part on the performance the Proposed Advisers exhibited in their
management of BTF. In particular, the Board noted that BTF significantly
outperformed the S&P 500 for both calendar years 2000 and 2001. Mr. Horejsi was
the portfolio manager for BTF during the entirety of each of these periods. It
should be noted that the Advisers' past performance is not necessarily
indicative of future performance. In addition, Mr. Horejsi has managed the
various Horejsi family interests for over 20 years. Presently, these entities
have portfolios of publicly-traded securities exceeding $620 million. Mr.
Horejsi is a long-term investor in Berkshire Hathaway and he agrees with Warren
Buffet's methodology of value investing for the long term. Assuming approval of
the Proposals contained in the Proxy, the Fund would be managed in much the same
way as BTF (i.e., for "total return"), although some of the Fund's investment
policies vis-a-vis BTF may differ. For example, assuming that Proposal 4 is
approved by shareholders, the Fund would operate as a non-diversified Fund and
BTF is diversified, and, in addition, BTF is leveraged using preferred stocks,
while the Fund is not currently leveraged.
WILL THE FUND'S EXPENSES BE AFFECTED?
Yes. The Fund's expenses will increase over time when the Fund becomes more
invested in common stocks. As proposed, the Proposed Advisers would be paid an
investment advisory fee of 1.25%, or 125 basis points, on the Fund's average
monthly net assets (the "Proposed Fee"). However, the Proposed Advisers have
agreed to waive a portion of the Proposed Fee until such time as the Fund has
invested 50% or more of its assets in common stocks. Until such time, the
advisory fee paid by the Fund will be the same as it has been in the past under
management by the Fund's prior investment advisor, VALIC, which fee was computed
as follows: (i) 0.50% (annualized) of the net asset value of the Fund; plus (ii)
2.5% of the sum of (a) the Fund's dividend and interest income; less (b)
interest on borrowed funds during such month (the "Prior Fee"). During fiscal
year ending June 30, 2001, VALIC was paid $349,267 under the Prior Fee. Based on
the Fund's assets at the end of fiscal year 2001, the Prior Fee was
approximately 71 basis points.
WILL MY DIVIDEND BE AFFECTED?
Yes. At some point, as the Fund invests a greater proportion of assets in
common stocks that either pay a lower yield than fixed income securities, or
don't pay any dividend at all, the Fund will reduce the dividend paid to common
stockholders to reflect the actual amount of income received. However, even
though a common stockholder may receive less dividend income, investments in
common stocks will be made only when the expectation is that the value of the
stock will ultimately appreciate at a higher rate than the yield received from
the Fund's fixed income investments.
IN WHAT TYPES OF COMMON STOCKS WILL THE FUND INVEST?
The Fund will focus its common stock investments primarily in U.S.
companies, although the Proposed Advisers won't shut the door on possible
investment opportunities outside the United States. Generally, target companies
should have consistently returned more than 13% on equity, while using modest
amounts of debt relative to their industry. In addition, the companies should be
in businesses the Proposed Advisers understand and have fairly predictable and
improving future earnings, and most importantly, they should be priced
reasonably relative to the company's earnings and anticipated growth in
earnings.
The Fund won't necessarily be a "large-cap" or "mid-cap" or "anything-cap"
fund since the Proposed Advisers believe it would be unwise to restrict
investments in any particular size company. Small companies have the same
opportunity to make profits as big ones.
When the Fund makes an investment in a common stock, the Fund will likely
hold onto it for a long time. There are two reasons for this: When investing for
value, a good investor will patiently hold a company to allow it to do what it's
supposed to do -- earn money and grow. And the longer a shareholder holds an
investment without selling, the longer the shareholder defers paying taxes on
any gains. In June of 1998, the Trust began and has continued to accumulate
shares of the Fund's common stock such that, as of the date of this Proxy, the
Trust owns
3
20.68% of the Fund's common stock and has owned this percentage since 12/27/01.
Since the Horejsi Trust owns such a large stake in the Fund, Mr. Horejsi will
not invest in anything that he wouldn't buy for himself. In the long run, the
Proposed Advisers think that value-type investing will produce the best overall
total return.
WHEN WILL THESE CHANGES TAKE PLACE?
If shareholders approve the proposed changes in investment objective and
investment advisers, these changes would become effective immediately after the
special shareholders' meeting. At that time, the Proposed Advisers would have
the authority to implement an investment objective of "total return" and invest
in common stocks, including real estate investment trusts. However, the speed
with which this occurs really depends on the market and what opportunities are
found. In other words, with regard to asset allocation between common stocks and
fixed income securities, the Fund cannot predict what the weightings of common
stocks and fixed income investments will be by year-end, or at any other point
in time. The Board believes that moving slowly and deliberately will be in the
shareholders' long-term best interests.
WHAT OTHER MATTERS ARE BEING VOTED ON?
The Board is recommending changing the Fund from a diversified to a
non-diversified investment company. In addition, the Board is recommending the
elimination or change of five of its "fundamental investment policies". The
change to non-diversified status and the elimination or change of these
investment policies are intended to give the Fund greater investment
flexibility.
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
USLIFE INCOME FUND, INC. 1680 38TH STREET, SUITE 800
BOULDER, COLORADO 80301
March 11, 2002
Dear Shareholder,
We are asking you to approve several significant, and we believe, positive
changes to the USLife Income Fund. The enclosed Notice of Special Meeting of
Shareholders of the USLife Income Fund outlines all of the items to be voted
upon. This proxy statement gives details about each proposal and should be
carefully read and considered before voting.
First, and most important, we are asking shareholders to approve a change
in the Fund's investment objective from "income" to "total return". By making
this change, the Fund will be able to make significant investments in common
stocks, which we believe will result in better overall returns over the years
than fixed income securities alone.
Second, we are asking shareholders to approve new advisers. This proxy
statement recommends Boulder Investment Advisers, L.L.C. ("BIA") and Stewart
Investment Advisers ("SIA") to be the Fund's co-investment advisers. Notably,
approval of BIA and SIA as advisers to the Fund will result in an increase in
the advisory fee currently paid by the Fund. The fee increase is discussed in
detail in the proxy statement.
Finally, we are asking shareholders to approve the elimination of or
changes to several fundamental investment policies in order to better align the
Fund's investing policies with its new objective. In addition, with the change
in objective, we will be changing the name of the Fund to Boulder Growth &
Income Fund, Inc.
Following this letter is a letter from Stewart R. Horejsi setting forth an
overview of where the Fund is headed. Mr. Horejsi's family interests control
20.68% of the Fund's common stock.
Your vote is important. PLEASE TAKE A MOMENT NOW TO VOTE BY COMPLETING AND
RETURNING YOUR PROXY CARD IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE.
Sincerely,
/s/ Stephen Miller
Stephen Miller, President
5
STEWART R. HOREJSI
200 SOUTH SANTA FE
SALINA, KANSAS 67401
March 11, 2002
Dear Shareholder:
As principal portfolio manager of the Fund's proposed investment advisers
and a representative of the Fund's largest shareholder, I would like to provide
shareholders with an overview of what they might expect with respect to the Fund
and the changes contemplated in the accompanying special proxy.
First, we caution shareholders not to expect too much too soon. We are
patient investors and we want the Fund to own good companies with long track
records of proven success. Because such companies are usually well known and
priced high relative to their intrinsic value, we may not find many prospects at
attractive prices in the near-term. Thus, you may see a substantial portion of
the Fund's assets remaining in cash- or income-type investments until we
identify attractive 'price to value' ratios in companies we understand and feel
sure about. When price-to-value ratios fluctuate, it is often the result of a
temporary change in how the public and general market perceive the company, and
not necessarily a function of the company's long-term economic fundamentals. If
we are successful in identifying companies that are selling at what we think are
cheap prices relative to real value, it may be several years before the market
changes its view and the prices move back in line with what we think the
investment is really worth, although shareholders should note that there is no
assurance that this "realignment" of price-to-value will occur.
Second, although for the near-term, we may invest in issues that produce
relatively high current income, ultimately, the Fund will look substantially
different than it does today. The Fund currently holds a substantial amount of
non-investment grade bonds ("junk bonds"), many of which we believe are very
risky investments. The proposals in the accompanying proxy (the "Proposals")
would permit the Fund to transition away from these risky investments, allowing
it to invest in common stocks, without limit, for capital appreciation, and
common stocks that pay dividends, including REITs and other closed-end
investment companies. Investing in common stocks may subject shareholders to
more risk than investing in bonds. Evaluating a company to buy its common stock
is more difficult than evaluating the same company to buy its bonds; there are
simply more variables that need to be considered. While I view income oriented
securities as one means with which to obtain an attractive relative total return
over the near-term, eventually, we expect we will find better total results in
the common stocks of what management considers to be quality companies, some of
which pay little or no dividends.
Third, the Proposals contemplate the Fund changing to a "non-diversified
management company" as defined by the Investment Company Act of 1940, as
amended. This change will permit us to buy fairly significant positions in
stocks of companies that we find attractive. And given that we will only buy
companies that we find attractive, we will end up with larger positions in fewer
names. A more concentrated portfolio may cause the Fund's net asset value to be
more volatile than it is now and thus may subject shareholders to more risk.
This idea of concentrating equity investments in fewer names goes against the
conventional mutual fund wisdom of diversifying across 100 or more different
stocks. However, diversifying to that extent doesn't make sense to us. We want
to put large sums in our best ideas, which we think will really give us success
over time, rather than a small amount in our best ideas and the rest in issues
in which we have less confidence.
The Proposal also contemplates elimination or change of a number of
restrictions which are considered "fundamental investment policies". These
investment restrictions were originally implemented to create a particular niche
in the market when the Fund was first offered to the public. However, the
reasons for those restrictions have long passed. Individual investors have none
of these restrictions and are free to invest in whatever asset they think makes
the most sense at a given time. We think our Fund should have the same ability
to seek the best opportunities available. Hence, we are recommending that these
investment handcuffs be removed so that our
6
Fund can invest in whatever the Proposed Advisers think makes the most sense in
any given market conditions. The risks associated with the proposed investment
policy changes are described fully in the proxy statement.
If the Proposals are approved, despite the Fund being "non-diversified", it
will still be prohibited from having more than 25% of its assets in any two
stocks and more than 5% in any ten stocks. This strikes me as being a prudent
guideline and we would adopt it as the Fund's "minimum diversification". First,
because it is required by the Internal Revenue Code for the Fund to be qualified
and treated as a regulated investment company. And second, because it makes good
sense. The Fund should be somewhat balanced. It is expected that the Fund would
always carry some income-producing assets to assist in paying operating and
potential leveraging expenses. To the extent possible, we don't want to have to
liquidate our holdings in good companies just to pay expenses. Notably, it will
probably take a while to reach the optimum level of ownership permitted under
diversification limitations of the Internal Revenue Code. I think it will be
difficult to find good companies at good prices, but we will wait until we can,
and we won't buy mediocre stocks simply to show activity. I believe that funds
having numerous stocks are really "closet index funds".
Regarding the increase in the advisory fee. Since the Fund's inception, the
advisory fee has been in the range of 0.70% based on the value of the Fund's
assets (the "Prior Rate"). This rate has varied from year-to-year because it is
a blended rate, based on assets under management and income generated. Proposal
Nos.1 and 2 contemplate increasing the Proposed Advisers' fee to a flat
annualized fee of 1.25% of average monthly net assets. However, the Proposed
Advisers have agreed to waive a portion of this fee until the Fund is invested
50% or more in common stocks. During this transition period, the Proposed
Advisers will be paid only at the Prior Rate. When the Fund's investments in
common stocks reach 50%, the advisory fee will immediately increase to the flat
1.25% on average monthly net assets, out of which all advisory fees would be
paid.
My family owns 20.68% of the Fund's common stock and hopes the Fund will
outperform fixed income investments over the next 30 years. My family expects to
hold its stock in the Fund for a very long time and our first objective is not
to lose what we have. This mandates conservative investing in companies which we
consider to have a high probability of future success. We also want to keep
taxes at a minimum so we want the Fund to buy companies we can own for a very
long time, giving rise to capital gains taxes when realized, but postponed as
long as possible.
Finally, we want to attract investors into the Fund with objectives similar
to ours:
A. Those who want an investment portfolio of common stocks built on
conserving principal.
B. Patient shareholders who are comfortable holding good companies for the
long-term, with the understanding that it may take a number of years to see
appreciable results. After 5 years, we believe these shareholders will be glad
they own the Fund.
C. Shareholders who want their profits taxed mostly as capital gains and
want that tax deferred as long as practical. While we intend to continue to pay
periodic dividends, our emphasis will be on total return, not dividend income.
Dividends are a very tax inefficient method of distributing earnings.
D. Shareholders who expect to own the Fund as part of their portfolio for a
long time.
Regarding the discount of the market price to the net asset value ("NAV"),
we think price relative to NAV for funds is similar to price relative to
earnings or book value in other companies. We believe it is a function of market
sentiment and, in fact, many closed-end fund investors have trading plans hinged
around fluctuations in this sentiment. We intend to focus on NAV and total
return. If we do a good job over the long term relative to the NAV, all
investors will be well served. If we have poor results relative to NAV and total
return, all investors will suffer regardless of whether they bought at NAV or at
a discount from NAV.
We welcome those as partners who have objectives similar to ours. We assure
you we will be "eating our own cooking". Although we are not required to, we
intend to own our 20.68% of the Fund for a very long time.
Sincerely,
/s/ Stewart R. Horejsi
7
Stewart R. Horejsi
8
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
9
USLIFE INCOME FUND, INC. 1680 38TH STREET, SUITE 800
BOULDER, COLORADO 80301
SPECIAL MEETING OF SHAREHOLDERS
April 26, 2002
PROXY STATEMENT
This document is a proxy statement ("Proxy Statement") for USLIFE Income
Fund, Inc. ("UIF" 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
Special Meeting of Shareholders of the Fund to be held on Friday, April 26,
2002, at 9:00 a.m. Mountain Standard Time, at the Doubletree La Posada Resort,
4949 E. Lincoln Dr., Scottsdale, Arizona, and at any adjournments thereof (the
"Meeting"). A Notice of Special Meeting of Shareholders and proxy card for the
Fund accompany this Proxy Statement. Proxy solicitations will be made, beginning
on or about March 11, 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 Shareholders Communications Inc.
("Georgeson"), the Fund's proxy solicitor. Georgeson's fee to assist in the
solicitation of proxies is estimated to be $25,000. 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 period ended June 30, 2001, has been mailed to shareholders. Additional
copies of the Annual Report as well as the Semi-Annual Report for the period
ended December 31, 2001, which has also been mailed to shareholders, are
available upon request, without charge, by calling 1-800-331-1710 or by writing
to the Fund at 1680 38th Street, Suite 800, Boulder, Colorado 80301.
If the enclosed proxy is properly executed and returned by April 26, 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
matters listed in the accompanying Notice of the Special 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.
Quorum Requirements and Adjournment
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, March 4, 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.
Under the By-Laws of the Fund, a quorum is constituted by 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. 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
10
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.
For purposes of determining the presence of a quorum for transacting
business at the Meeting, abstentions and broker "non-votes" will be treated as
Shares that are present but which have not been voted. Broker non-votes are
proxies received from brokers or nominees when the broker or nominee has neither
received instructions from the beneficial owner or other persons entitled to
vote nor has discretionary power to vote on a particular matter. Accordingly,
shareholders are urged to forward their voting instructions promptly.
Security Ownership of Certain Beneficial Owners
The following table sets forth certain information regarding the beneficial
ownership of the Fund's Shares as of February 28, 2002 by the Board of Directors
and each person who is known by the Fund to beneficially own 5% or more of the
Fund's Common Stock.
Name of Owner Position with Common Stock Percentage
the Fund Beneficially Owned Beneficially Owned
-------- ------------------ ------------------
The Ernest Horejsi Trust No. 1B ------- 1,171,400 20.68%
P.O. Box 801
614 Broadway
Yankton, South Dakota
Badlands Trust Company ------ ---** 20.68%
PO Box 801
614 Broadway
Yankton, South Dakota
Stewart R. Horejsi Trust No. 2 ------- ---** 20.68%
PO Box 801
614 Broadway
Yankton, South Dakota
Alfred G. Aldridge, Jr.* Director 50 ***
Brig General (Ret.)
Calif. Air National Guard
Richard I. Barr* Director 100 ***
Susan Ciciora* Director ---** ---
Joel W. Looney* Director 100 ***
Stephen C. Miller* Director and ---** ---
President
Aggregate Shares Owned ** 1,171,650 20.69%
----------------------------
* The Director's respective addresses are c/o USLife Income Fund, Inc., 1680 38th Street,
Suite 800, Boulder, Colorado 80301.
** Excludes shares owned by the Trust. Badlands Trust Company ("Badlands") is one of three
trustees of the 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 children. 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 Trust. Together with Larry Dunlap and
Badlands, Ms. Ciciora is a trustee of the Trust and also one of the beneficiaries of the
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.
*** Less than 1%.
11
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 February 28, 2002, the executive officers and directors of the Fund,
as a group, owned 1,171,650 Common Shares (this amount includes the aggregate
shares of Common Stock owned by the Trust set forth above) of the Fund,
representing 20.69% of Common Shares.
Information Concerning Company Bylaws
On January 23, 2002, the Board amended and restated the Fund's Bylaws (the
"Amended and Restated Bylaws"). The Amended and Restated Bylaws include, among
other things, provisions commonly referred to as "anti-takeover" provisions,
including provisions for (i) a staggered board of directors, (ii) super-majority
voting for removal of directors from office (i.e., 80% shareholder voting),
(iii) advance notice requirements for the nomination of directors and proposals
from shareholders, and (iv) super-majority voting (i.e., 80% of shareholders
voting, absent affirmative Board recommendation for certain actions (e.g.,
amending bylaws or articles of incorporation, stockholder proposals for specific
investment decisions, liquidation, "business combinations" such as mergers,
consolidations, sales of assets, etc.).
Information About the Independent Auditor
On January 23, 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 June 30,
2002. The selection of KPMG was ratified by the entire Board.
KPMG has informed the Fund that it has no direct or indirect financial
interest in the Fund. The Horejsi Group has 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 since April
18, 2000. Ernst & Young resigned as independent accountant effective as of
January 23, 2002. Ernst & Young's reports on the financial statements for the
past two years 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 have been no disagreements with such accountants on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure.
Summary of Voting Rights on Proxy Proposals
The approval of each proposal requires the affirmative vote of a "majority
of the outstanding voting securities" of the Fund. For purposes of this Proxy
Statement, a "majority of the outstanding voting securities" of the Fund shall
have the meaning for such phrase as set forth in the Investment Company Act of
1940, as amended (the "1940 Act"), that is, the affirmative vote of the lesser
of (a) 67% or more of the Shares of Common Stock present or represented by proxy
at the Meeting or (b) more than 50% of the outstanding Shares of Common Stock.
The forgoing standard is often referred to herein as a "1940 Act Majority Vote".
Abstentions and broker non-votes will be counted as present for quorum
purposes. However, because they are not voted in favor of a proposal and each of
the proposals is dependent on approval by a percentage of shares outstanding or
shares present, they will have the effect of a "no" vote on all proposals.
In the event any one or more proposals are not approved, the Board will
consider what further action to take, which may include re-soliciting
shareholders and/or modifying aspects of the relevant proposals.
Each proposal is independent of any other proposal so that the
implementation of any successful proposal is not contingent on the success of
any other proposal, except for Proposals 1 and 2 and Proposals 4 and 9.
12
OVERVIEW OF PROPOSALS
This Proxy Statement describes nine proposals, which, if approved, will
permit the Fund to move in a new direction through the retention of new
investment advisers and restructuring of the Fund's investment focus. THE BOARD
OF THE FUND, INCLUDING THE NON-INTERESTED DIRECTORS, UNANIMOUSLY RECOMMENDS THAT
YOU VOTE IN FAVOR OF EACH PROPOSAL. Mr. Stewart R. Horejsi, the Proposed
Advisers' portfolio manager, a representative of the Horejsi Trust which holds
approximately 20.68% of the Fund's outstanding Common Stock, has informed the
Board that those Shares will be voted in favor of each of the nine proposals.
BACKGROUND INFORMATION
Since its inception in 1972, the Fund has been managed in accordance with
its stated objective of "providing a high level of current income for its
shareholders . . . through investment in a diversified portfolio composed
primarily of fixed income securities which management considers to be of
high-quality." The Fund's investment policy stated that it would invest at least
50% of its total assets in non-convertible debt securities which were rated at
the time of purchase within the four highest grades by Moody's Investors
Service, Inc. or Standard & Poor's Corporation, whereas the balance of the
Fund's assets might be invested in other fixed income securities, including
non-convertible and convertible debt securities, preferred stock and other
securities with equity features.
Since 1998 the Horejsi Trust has been accumulating a substantial position
in the Fund's Common Stock. In 1999, the Horejsi Trust was unsuccessful in
waging a proxy contest for the purpose of gaining representation on the Fund's
Board. In 2000, the Horejsi Trust successfully waged a proxy contest to prevent
changing the Fund's fundamental policy regarding issuance of senior securities.
The Horejsi Trust opposed issuing senior securities in the interest of
protecting its investment in the Fund (i.e., it believed that VALIC had not
demonstrated an ability to effectively manage a leveraged portfolio). Again, in
2001, the Horejsi Trust successfully waged a proxy contest to prevent the
approval of VALIC as the Fund's investment adviser. Finally, in January 2002,
the Horejsi Trust successfully solicited, in an uncontested shareholder ballot,
shareholder support for five of the Horejsi Trust's director candidates (the
"Horejsi Candidates").
On January 23, 2002, after a special shareholder meeting at which the
Horejsi Candidates were elected, the prior board of directors resigned their
positions and the Horejsi Candidates took their seats on the Fund's Board. At
that time, the new Board held a special meeting called for the purpose of, among
other things, (i) approving interim advisory agreements with the Proposed
Advisers, (ii) considering advisory proposals and advisory agreements from the
Proposed Advisers, (iii) considering a proposal to change the Fund's investment
objective to "total return", (iv) considering a proposal to change the Fund's
diversified status to non-diversified, and (v) considering a proposal to
eliminate or change certain of the Fund's fundamental investment policies. At
the January 23rd meeting, after due consideration, the Board, including the
non-interested Directors, unanimously approved each of these changes and agreed
to recommend them to shareholders.
PROPOSED CHANGES TO INVESTMENT FOCUS. The Board is recommending that the
Fund's investment objective be changed from "providing a high level of current
income for its shareholders through investment in a diversified portfolio
composed primarily of fixed income securities which management considers to be
of high-quality" to the objective of "total return". Total return is comprised
of long-term capital appreciation and income from both fixed income and equity
securities. In connection with this change in investment objective, the Fund
would change its name to the Boulder Growth & Income Fund, Inc. The Fund would
continue to trade on the New York Stock Exchange, although under a different
symbol -- BIF.
To achieve the new investment objective, the Fund would pursue investment
strategies expected to produce both long-term capital appreciation through
investment in common stocks and high current income consistent with preservation
of capital through investments in income producing securities, such as
high-dividend paying common stocks, real estate investment trusts,
income-oriented registered investment companies, preferred stocks and bonds. It
is expected that when the Fund invests in common stocks, it will invest in U.S.
companies, though it will not be limited to investing in U.S. securities.
Further, it is expected that the Fund will have a low turnover rate with respect
to its common stock investments, since the Fund will seek to invest in common
stocks that can be held for a
13
period of years. The investment strategy used in equity investments will not
include "market timing" where equities are bought and sold based on daily,
weekly or periodic price fluctuations. The Fund typically will invest in stocks
that have a proven track record of earnings, and the prospect of increased
future value through growth in revenues and profits. The Fund may invest in
companies of any size; however, it is not expected that the Fund will make
significant investments in start-up companies, initial public offerings,
non-public companies, or companies with little or no operating history.
Assuming approval of Proposal 4, the Fund will operate as a
"non-diversified" investment company, as defined in the 1940 Act. As a result,
with respect to 50% of the Fund's portfolio, the Fund must limit to 5% the
portion of its assets invested in the securities of a single issuer. There are
no such limitations with respect to the balance of the Fund's portfolio,
although no single investment can exceed 25% of the Fund's total assets. The
Fund intends to concentrate its common stock investments in a few issuers and to
take large positions in those issuers, consistent with being a "non-diversified"
fund. As a result, the Fund is subject to a greater risk of loss than a
diversified fund or a fund that has diversified its investments more broadly.
Taking larger positions is also likely to increase the volatility of the Fund's
net asset value reflecting fluctuation in the value of large Fund holdings.
The Fund's portfolio will be invested primarily in a combination of common
stocks and fixed and other income producing securities. Common stocks will
include stocks that pay dividends and offer other income features such as real
estate investment trusts and other income-oriented registered investment
companies. The common stocks are expected to have greater risk exposure and
reward potential over time than investments in fixed income securities. The
volatility of common stock prices has historically been greater than fixed
income securities. Thus, as the Fund shifts a portion of its assets into common
stocks, the volatility of the Fund's net asset value may also increase. The time
horizon for the Fund to achieve its objective of total return will likely be
longer than for a fund that invests solely for income.
The Fund may, for temporary defensive purposes, allocate a higher portion
of its assets to fixed income securities or cash and cash equivalents. For this
purpose, cash equivalents consist of short-term (less than twelve months to
maturity) U.S. Government securities, certificates of deposit and other bank
obligations, investment grade corporate bonds and other debt instruments, and
repurchase agreements. Under normal circumstances, the Fund will not have more
than 10% of its assets in cash or cash equivalents. However, from time to time,
a larger portion of the Fund's assets may be held in cash pending identification
of attractive investment opportunities.
ELIMINATION OR CHANGE OF CERTAIN FUNDAMENTAL INVESTMENT POLICIES. The
Board, including the non-interested Directors, is recommending the elimination
or changes of certain of the Fund's "fundamental investment policies", which
policies cannot be changed without shareholder approval. Following is a summary
of the fundamental investment policies that would be eliminated or changed:
(A) Prohibition on Investing in Real Estate Investment Trusts or REITs. The
Board recommends eliminating the Fund's fundamental investment policy
prohibiting investing in real estate securities. The Proposed Advisers believe
that REITs present a timely opportunity because they offer good sources of
income and provide diversification through a wide spectrum of real estate
holdings, often nationwide. There are risks associated with REITs in that
property valuations may rise and fall with either the local economic conditions
or with the national economy. Furthermore, the dividend income paid out by the
REIT may be reduced or eliminated depending on the performance of the underlying
real properties, including occupancy rates and lease rates. In addition, the
Fund bears its ratable share of a REIT's expenses while still paying the
advisory fee on the Fund assets so invested. The Proposed Advisers may invest up
to 25% of the Fund's assets in REITs. The Fund will continue to be prohibited
from investing in real estate. For a discussion of the risks associated with
this recommendation, see Risks Associated with Investing in REITs under Proposal
No. 8 below.
(B) Prohibition on Borrowing. The Board recommends amending the Fund's
fundamental investment policy which prohibits borrowing. The Board believes that
a relatively small amount of well-managed leverage might have a very beneficial
effect on shareholder return. If managed properly, leverage can pay all or a
substantial portion of the Fund's expenses with the spread between the borrowed
money and the return on the margin assets. For a discussion of the risks
associated with this recommendation, see Risks Associated with Leverage under
Proposal No. 5 below.
(C) Prohibition on Pledging Assets. The Board recommends amending the
Fund's fundamental investment policy which prohibits pledging Fund assets as
security for borrowings. Changing this policy is part and parcel to
14
changing the prohibition on borrowing, thus freeing the Fund to more effectively
leverage the Fund. For a discussion of the risks associated with this
recommendation, see Risks Associated with Pledging Assets under Proposal No. 6
below.
(D) Prohibition on Issuing Senior Securities. The Board recommends changing
the Fund's fundamental investment policy prohibiting issuing "senior securities"
as that term is defined in the 1940 Act. Again, eliminating this policy is part
and parcel to changing the prohibitions on borrowing and pledging because, under
the 1940 Act, bank and other institutional borrowing is considered issuing a
"senior security". For a discussion of the risks associated with this
recommendation, see Risks Associated with Leverage under Proposal No. 7 below.
(E) Restrictions on Greater-than-5% Holdings in One Issuer. The Board
recommends eliminating the Fund's fundamental investment policy prohibiting the
Fund's investing more than 5% of its assets in any one issuer. Elimination of
this policy is consistent with changing the Fund to a non-diversified fund, as
the Proposed Advisers will be looking to acquire a substantial position in a
small number of what the advisers consider to be high-quality companies. For a
discussion of the risks associated with this recommendation, see Risks
Associated with Non-Diversification under Proposals Nos. 4 and 9 below.
Each of the foregoing changes to "fundamental investment policies" will
require a 1940 Act Majority Vote.
DIVIDENDS. Because the Fund's investment objective will be total return,
income will remain a part of the Fund's strategy. Although substantially all
income the Fund earns in excess of the Fund's expenses will continue to be
distributed to shareholders on a regular periodic basis, going forward, the
Board will not place as much emphasis on distributing regular dividend payments
as in the past. Fund management believes that long-term capital appreciation
from investments in equities provides the potential for greater returns over the
long term and is generally more tax efficient than investments in dividend- or
interest-paying securities. In general, all of the Fund's net investment income
must be paid out to shareholders at least annually, which is a taxable event for
shareholders who hold Fund Shares in a taxable account. However, securities with
unrealized capital appreciation do not become taxable until such time as the
securities are sold and the gain realized.
Net investment income and net realized short-term capital gains will be
distributed at least annually, and the Board will determine on an annual basis
whether the Fund will pay out its net realized long-term capital gains, if any,
or retain the capital gains in the Fund.
REASON FOR PROPOSED CHANGES. The purpose of changing the Fund's objective
to total return is to allow the Fund the opportunity to invest more
substantially in common stocks than currently allowed under the existing
objective. The management of the Fund believes that by allowing the Fund to
invest more of the Fund's assets in common stocks, the Fund will have the
potential to produce a higher total return over the long term than shareholders
would achieve if the Fund's objective remains purely "income". Historically,
common stocks, as measured by the Standard & Poor's Index of 500 Stocks, have
outperformed every other asset class over the long term, including fixed income
securities.
The Fund is required to change its name because, assuming shareholders
approve the change in objective, it no longer will maintain 50% of its assets in
investment grade securities and will no longer have "income" as its primary
investment objective. Thus, the existing name will no longer be an appropriate
reflection of what the Fund is. In addition, because the Fund is no longer
affiliated with US Life, the Fund's charter requires the name to be changed to
delete the reference to "US Life".
PROPOSED CHANGES TO MANAGEMENT. On January 23, 2002, VALIC tendered and the
Board accepted its resignation and the Proposed Advisers were selected to manage
the Fund on an interim basis. The specific proposals relating to management
changes are as follows:
Boulder Investment Advisers, L.L.C., a Colorado limited liability company
("BIA"), and Stewart Investment Advisers ("SIA") now act as the Fund's
co-investment advisers on an interim basis. Once approved by shareholders, each
of BIA and SIA would continue to serve in these roles on a permanent basis
subject to periodic contract reviews and renewals by the Board as required under
the 1940 Act. The Fund would pay BIA and SIA a monthly fee for its advisory
services at the annual rate of 1.25% of the Fund's total average monthly net
assets (the "Proposed Fee"). However, a portion of the Proposed Fee will be
waived until such time as the portion of the Fund's assets invested in common
stock equals 50% or more of the value of the Fund's total assets. Until such
time, the Fund will be paid an advisory fee identical to that paid to the Fund's
previous adviser, which fee was computed as
15
follows: (i) 0.50% (annualized) of the net asset value of the Fund; plus (ii)
2.5% of the sum of (a) the Fund's dividend and interest income; less (b)
interest on borrowed funds during such month (the "Prior Fee"). In fiscal year
2001, the Prior Fee was approximately 71 basis points. The services to be
provided by BIA and SIA (and the fees payable to each) are described more fully
under Proposals 1 and 2 below.
EVALUATION BY THE BOARD
In advance of the Board meeting which was held immediately following the
special shareholders meeting on January 23, 2002, at which they were elected to
the Board, the Board nominees were presented with an extensive proposal from the
Proposed Advisers recommending a change in the Fund's investment adviser,
changing the Fund to a non-diversified fund, changing the Fund's investment
objective and eliminating or changing certain of the Fund's fundamental
investment policies (the "Restructuring Proposal"). The Restructuring Proposal
represented the recommendation by the Proposed Advisers and Stewart R. Horejsi
on behalf of the Horejsi Trust, which holds approximately 20.68% of the Fund's
Common Stock. The Restructuring Proposal was considered at the special board
meeting held on January 23, 2002. Also, prior to the special meeting, informal
discussions were held among various Board nominees, as well as between the
non-interested director nominees and their counsel. Throughout the process of
considering the Restructuring Proposal, the Board was advised by counsel to the
Fund and separate counsel that the non-interested Board nominees had retained.
Extensive materials were presented to and evaluated by the Board with
regard to each aspect of the Restructuring Proposal. With regard to the change
in investment objective and policies, the Board reviewed materials describing
the new objective and policies, the types of securities in which the Fund might
invest, the risk and return characteristics of those securities, the historical
performance of common stocks in relation to other asset classes and related
matters. The Board evaluated the impact of the proposed change in objective and
policies on shareholders, including the possible tax consequences of
repositioning the Fund's portfolio toward common stocks, the possible reduction
in the Fund's regular quarterly dividend as a higher proportion of assets are
invested in low- or non-income producing securities and the resulting increase
in the Fund's expense ratio. The Board also reviewed the Fund's current
portfolio holdings, current Fund financial information, the Fund's performance
record since inception, the historical performance record of various asset
classes as measured by market indices, current and anticipated market conditions
for fixed income securities and common stocks and the recent price history of
the Fund's Common Stock.
With regard to the proposal to approve new investment co-advisers (i.e.,
BIA and SIA, two companies controlled by affiliates of Stewart R. Horejsi and
the Trust (collectively, along with other entities affiliated with the Horejsi
family, the "Horejsi Group"), which engage Stewart R. Horejsi as their portfolio
manager), extensive written materials were also presented to the Board. Those
materials included information about BIA and SIA, their personnel, financial
condition, compliance and systems capability and related matters. The Board also
reviewed extensive audited and unaudited performance data with respect to the
Proposed Advisers' management of BTF, including calendar year, fiscal year and
12-month total returns, returns on NAV and returns on market, and BTF's
performance rank with Lipper Analytical Services ("Lipper") in a broad range of
closed and open-end fund categories. In addition, the Board reviewed a report
prepared by an independent accounting firm showing the investment performance
achieved by Mr. Horejsi with respect to his family's portfolio of securities
over a 10-year period ending 12/31/98. Notably, that portfolio now exceeds $620
million. Since, subsequent to the date of this report (i.e., 12/31/98), Mr.
Horejsi had compiled a performance history with respect to BTF, there was no
need to update the report. Cognizant of the fact that the Proposed Advisers had
a relatively limited operating history with respect to advising a registered
investment company, the Board carefully considered the capability of those
parties to advise the Fund. The Board noted that the past performance of the
Advisers is not necessarily indicative of future performance.
The Board also considered the reasonableness of the Proposed Fees to be
paid to BIA and SIA. In this regard, the Board took note that the Proposed Fee
is identical to that paid to the Proposed Advisers by BTF and that, assuming
Proposals 3, 7 and 8 and approved, the Fund is expected to be managed over time
in much the same way as BTF (i.e., with "total return" being the Fund's
objective), although some of the Fund's investment policies vis-a-vis BTF may
differ. For example, assuming that Proposal 4 is approved by shareholders, the
Fund would operate as a non-diversified Fund and BTF is diversified, and, in
addition, BTF is leveraged using preferred stocks, while the Fund is currently
unleveraged. The Board also reviewed materials and reports supporting the
reasonableness of the Proposed Fee, including data prepared by Lipper showing
fees charged by funds investing in common stocks,
16
expense ratios for those funds and profitability data of SIA and BIA assuming
the approval of the Proposed Fee. In light of the possibly extended timetable
for investing Fund assets in common stocks, the Board negotiated a waiver of a
portion of the Proposed Fee until such time as at least 50% of Fund assets were
invested in common stocks, which includes investments in REITs and common stock
of registered investment companies ("RICs").
Prior to and throughout the process of considering the Restructuring
Proposal, the Board held extensive discussions with Mr. Horejsi and
representatives of the Proposed Advisers. In the final analysis, the Board gave
considerable weight to the views of Mr. Horejsi, as a major Fund shareholder.
Nonetheless, the Board carefully evaluated the impact of the Restructuring
Proposal on other holders of the Fund's Common Stock. The Board recognizes that
the proposed changes in investment objective and policies may be disadvantageous
to certain shareholders, including those shareholders seeking regular monthly
dividends or lower volatility of net asset value. They also recognize that the
Fund's expense ratio will increase. The Board considers these disadvantages to
be outweighed by the potential long-term benefits to be derived from common
stock investing. The Board also believes that the changes are an appropriate and
reasonable response to the recommendations of the Horejsi Trust.
On January 23, 2002, the Directors of the Fund, including the
non-interested directors, unanimously approved the Restructuring Proposal,
including each of the items described in this Proxy Statement as Proposals 1
through 9, and recommended their approval to Fund shareholders. At the same
meeting, the Board approved interim advisory agreements engaging the Proposed
Advisers to manage the Fund's assets on an interim basis pending the outcome of
this proposal, consistent with Rule 15a-4 under the 1940 Act.
Board Considerations
The Board, in making its determination to approve the Proposed Fee,
considered the information provided by the Proposed Advisers, as well as other
information made available to it regarding the Restructuring Proposal, the Fund,
its fees and expenses and the Proposed Fee. The Board considered, among other
things, the following:
1. BTF's total return on NAV for 2001 and 2000 in comparison with that of the
S&P 500 Index and BTF's substantial outperformance of the Index;
2. BTF was ranked the #1 Fund in 2000 by Lipper in the closed-end Growth &
Income category;
3. That the Proposed Fee was on the high end of the advisory-fee-spectrum as
compared to advisory fees paid by other funds with similar proposed
objectives and policies, but that the Fund's expense ratio, taking the
Proposed Fee increase into account, was more middle-of-the-range when
compared to the total expenses of funds of comparable size, objectives and
policies;
4. The nature and quality of the services rendered by the Proposed Advisers to
BTF;
5. The actual expense ratio of the Fund and its pro forma expense ratio
assuming adoption of the Proposed Fee;
6. The profitability of the proposed advisory contracts to the Proposed
Advisers assuming adoption of the Restructuring Proposal;
7. The strong performance of Mr. Horejsi in managing the assets of the Horejsi
Group over the ten-year period prior to his becoming associated with a
registered investment adviser; and
8. Such other factors and information as the Board and their counsel
considered relevant.
The Board placed primary emphasis on the Proposed Advisers' investment
performance with BTF and the high level of investing expertise provided to that
fund. The Board reviewed a comparison of the Fund's Proposed Fee and pro forma
expense ratio against data for other funds available through Lipper. With the
Proposed Fee in place, the Advisers believe that the overall advisory fees,
although higher than most other registered investment companies, will remain in
line with other funds with similar objectives and policies and attractive
performance records.
Prior to and following the Proposed Advisers' presentation, the independent
Directors consulted separately with their independent counsel regarding the
Restructuring Proposal. Thereafter, upon reviewing all of the information the
Board considered relevant and necessary, the Board determined that
implementation of the Restructuring Proposal, the Proposed Fee and the new
advisory agreements with BIA and SIA were in the best interests of the
17
Fund and its shareholders. The Board, including the non-interested Directors,
unanimously approved the Restructuring Proposal, including the Proposed Fee, and
the new advisory agreements with BIA and SIA, subject to approval of the
agreements by a 1940 Act Majority Vote. The Trust intends to vote its shares in
favor of each of the proposals.
18
PER SHARE DATA FOR COMMON STOCK TRADED ON THE NYSE. The Common Stock is listed
and traded on the NYSE under the symbol UIF. The following table sets forth the
high and low sales prices for the Common Stock for the periods indicated.
Period High Net Net
High Sales Sales Asset Premium Low Sales Low Sales Asset Premium
Date Price Value (Discount) Date Price Value (Discount)
---------- ----- ----- ---------- ---------- ------- ----- ----------
10/1/01 to12/31/01 12/3/2001 $8.29 $8.5 -2.5% 12/27/2001 $7.61 $8.38 -9.2%
7/1/01 to 9/30/01 8/14/2001 8.8 8.83 -0.3% 9/27/2001 7.71 8.25 -6.5%
4/1/01 to 6/30/01 4/5/2001 8.85 8.75 1.1% 5/3/2001 8.21 8.63 -4.9%
1/1/01 to 3/31/01 2/14/2001 9.02 9.03 -0.1% 3/28/2001 8.45 8.75 -3.4%
10/1/00 to12/31/00 12/21/2000 8.5625 8.51 0.6% 11/30/2000 7.9375 8.51 -6.7%
7/1/00 to 9/30/00 9/1/2000 8.75 9.12 -4.1% 7/5/2000 8.25 8.96 -7.9%
4/1/00 to 6/30/00 4/6/2000 8.9375 9.3 -3.9% 5/18/2000 7.75 9.04 -14.3%
1/1/00 to 3/31/00 3/1/2000 8.875 9.31 -4.7% 1/5/2000 7.875 9.41 -16.3%
10/1/99 to12/31/99 11/15/1999 9.4375 9.66 -2.3% 12/31/1999 7.9375 9.41 -15.6%
7/1/99 to 9/30/99 7/16/1999 9.8125 10.18 -3.6% 8/27/1999 9.125 9.88 -7.6%
4/1/99 to 6/30/99 5/13/1999 9.75 10.44 -6.6% 5/28/1999 9.3125 10.15 -8.3%
1/1/99 to 3/31/99 2/16/1999 10.125 10.49 -3.5% 3/31/1999 9.6875 10.41 -6.9%
It is not possible to state whether the Common Stock will trade at a
premium or discount to net asset value following the changes in investment
management and investment objective and policies described in this Proxy
Statement. The trading price for the Common Stock will depend on a number of
factors, such as the performance of the Fund, the supply and demand for shares
and market perception. However, it should be noted that, as a general matter,
closed-end equity funds as a group have tended to trade at wider discounts than
closed-end fixed income funds as a group. Consequently, the change in investment
focus of the Fund toward common stocks may result in the Common Stock trading at
a discount larger than it has traded in the recent past.
In order that your Shares may be represented at the Meeting, you are
requested to vote on the following matters:
PROPOSALS 1 AND 2: TO APPROVE OR DISAPPROVE THE PROPOSED
INVESTMENT ADVISORY AGREEMENTS WITH BIA AND SIA
At a meeting of the Board held on January 23, 2002, the Directors
unanimously approved (including unanimous approval by a separate vote of the
Directors who are not "interested persons" of the Fund within the meaning of
Section 2(a)(19) of the 1940 Act) an Investment Co-Advisory Agreement between
the Fund and Boulder Investment Advisers, L.L.C., and an Investment Co-Advisory
Agreement between the Fund and Stewart Investment Advisers (the "Proposed
Advisers"), each dated January 23, 2002 (each a "Proposed Advisory Agreement"
and together the "Proposed Advisory Agreements"), and resolved to recommend such
Proposed Advisory Agreements to the shareholders for their approval.
Summary of the Proposal
Based on an extensive analysis of the factors described above (see
"Overview--Proposed Changes To Management--Evaluation by the Board"), all of the
Directors of the Fund, including the non-interested Directors, have determined,
subject to approval by the shareholders of the Fund, to approve the execution of
the Proposed Advisory Agreements with BIA and SIA (also referred to herein as
the "New Advisory Agreements"). At a special meeting of the Board of Directors
held on January 23, 2002, the Board, including the "non-interested" Directors,
approved the Proposed Advisory Agreements to be effective upon approval by
shareholders of the Fund.
Boulder Investment Advisers, L.L.C.
19
BIA or Boulder Investment Advisers, L.L.C. 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 Proposed Advisers and has extensive experience
managing common stocks for BTF as well as for the Trust 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 outcome of Proposals Nos. 1 and 2.
The executive officers of BIA and the principal occupation of each are set
forth below:
Name and Position with BIA Principal Occupation
----------------------------------------------------------- --------------------------------------------------------
Stephen C. Miller - President, General Counsel and President, Chief Executive Officer and Chairman of
Chief Executive Officer the Board of the Fund; President, Chief Executive
1680 38th Street, Suite 800 Officer and Chairman of the Board of BTF; Vice
Boulder, CO 80301 President and Assistant Secretary of Badlands;
Counsel to Krassa & Miller, LLC since 1991; and
Manager of Fund Administrative Services, L.L.C.
("FAS")
Carl D. Johns - Vice President and Treasurer Chief Financial Officer, Chief Accounting Officer,
1680 38th Street, Suite 800 Vice President and Treasurer of the Fund; Chief
Boulder, CO 80301 Financial Officer, Chief Accounting Officer, Vice
President and Treasurer of BTF; Assistant Manager of
FAS
Laura Rhodenbaugh - Secretary Secretary of FAS; Treasurer of SIA; Secretary and
200 S. Santa Fe #4 Treasurer of various Horejsi affiliates
PO Box 6043
Salina, KS 67401
Stewart R. Horejsi - Investment Manager Investment Manager for each Adviser; Director of BTF
Bellerive until November 2001; since April 1994, General
Queen Street Manager, Brown Welding Supply, LLC (sold in 1999);
St. Peter, Barbados President or Manager, various subsidiaries of Horejsi,
Inc. (liquidated in 1999) since January, 1992
Carl D. Johns, the Fund's Vice President and Treasurer, is also Vice
President and Treasurer for BIA and, together with Mr. Horejsi, is responsible
for the Fund's fixed income portfolio and BIA's day-to-day advisory activities.
Mr. Johns received a Bachelors degree in Mechanical Engineering at the
University of Colorado in 1985, and a Masters degree in Finance from the
University of Colorado in 1991. He worked at Flaherty & Crumrine, Incorporated,
from 1992 to 1998. During that period he was an Assistant Treasurer for the
Preferred Income Fund Incorporated, the Preferred Income Opportunity Fund
Incorporated, and the Preferred Income Management Fund. Since 1999, he has been
Chief Financial Officer, Chief Accounting Officer, Vice President and Treasurer
of BTF.
Stewart Investment Advisers
SIA 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.
20
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 outcome of Proposals Nos. 1 and 2. Prior to 1999,
SIA, which is registered as an investment adviser under the Investment Advisers
Act of 1940, had not 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
SIA, has extensive experience managing common stocks for the Horejsi Group 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 Proposed Advisory
Agreement, 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 Mr. Johns, 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 BTF 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 Group since June 1986. Mr. Horejsi has been the
investment adviser for the Horejsi family trusts (i.e. the Lola Brown Trust No.
1B, the Ernest Horejsi Trust No. 1B, the Stewart R. Horejsi Trust No. 2, and
certain other related trusts) and the Horejsi Group since 1982. As of December
31, 2001, the size of these trusts' common stock portfolio is approximately $620
million. 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.
The executive officers of SIA and the principal occupation of each are set
forth below:
Name and Position with SIA Principal Occupation and Address
--------------------------------------------- ----------------------------------------------------------------------
Glade Christensen - Managing Director, Sales manager for SIA
President and Resident General Sales Manager
Bellerive,
Queen Street
St. Peter, Barbados
Stephen C. Miller - Director, Vice President, Chief Executive Officer and Chairman of the Board of
President and Secretary the Fund; President, Chief Executive Officer and Chairman of the
1680 38th Street, Suite 800 Board of BTF; Vice President and Secretary of SIA; Director, Vice
Boulder, CO 80301 President and Assistant Secretary of Badlands; Counsel to Krassa &
Miller, LLC since 1991; and Manager of FAS.
Laura Rhodenbaugh - Treasurer Secretary of FAS and BIA; Secretary and Treasurer of various
200 S. Santa Fe #4 Horejsi affiliates
PO Box 6043
Salina, KS 67401
Stewart R. Horejsi - Investment Manager Investment Manager for SIA; Director of BTF until November 2001;
Bellerive Since April 1994, General Manager, Brown Welding Supply, LLC (sold
Queen Street in 1999); President or Manager, various subsidiaries of Horejsi,
St. Peter, Barbados Inc. (liquidated in 1999) since January 1992.
21
THE PRIOR AND INTERIM ADVISORY AGREEMENTS
THE VALIC AGREEMENTS. VALIC, located at 2929 Allen Parkway, Houston, Texas,
77019, served as the Fund's investment adviser until January 23, 2002. Until
July 17, 2001, VALIC managed the Fund under an investment advisory agreement
dated September 24, 1997 (the "VALIC Agreement"). At a regular meeting of the
board of directors held on July 16-17, 2001, the then-board approved an interim
investment advisory agreement between the Fund and VALIC (the "Interim VALIC
Agreement") that was necessitated by, and would become effective as of the date
of, a proposed merger between American International Group, Inc. (AIG) and
VALIC's parent company, American General Corporation International Group, Inc.
(the "Merger"). The Merger was effected on August 29, 2001 and, as a result of
the Merger, VALIC became a subsidiary of AIG.
Pursuant to the terms of the VALIC Agreement and the Interim VALIC
Agreement, VALIC was responsible for managing the Fund's investment portfolio
and was paid an investment advisory fee calculated as follows: (i) 0.50%
(annualized) of the net asset value of the Fund; plus (ii) 2.5% of the sum of
(a) the Fund's dividend and interest income; less (b) interest on borrowed funds
during such month (the "VALIC Fee" or "Prior Fee"). In fiscal year 2001, the
VALIC Fee was approximately 71 basis points. For the fiscal year ended June 30,
2001, the Fund paid VALIC $349,267 for providing advisory services.
THE INTERIM ADVISORY AGREEMENTS. On January 23, 2002, VALIC tendered its
resignation to the Board as adviser to the Fund. At a special meeting of the
Board held on the same date, the Proposed Advisers presented the Board with an
extensive proposal to, among other things, approve the Proposed Advisers as
interim advisers to the Fund pending the Proposed Advisers' subsequent approval
by shareholders. At this meeting, the Board approved the Proposed Advisers as
interim advisers to the Fund and approved Interim Advisory Agreements with BIA
and SIA which contemplated an interim advisory fee equal to the VALIC Fee (i.e.,
the fee previously paid to VALIC under the VALIC Agreement and the VALIC Interim
Agreement) (the "Interim Advisory Agreements").
Under the Interim Advisory Agreements, commencing January 23, 2002, BIA and
SIA became responsible for making investment decisions, supplying investment
research and portfolio management services and placing purchase and sale orders
for portfolio transactions for the Fund. The compensation is the same under the
Interim Advisory Agreements and the VALIC Agreement and VALIC Interim Agreement
and the other terms of the Agreements are similar, although under the Interim
Advisory Agreements, BIA and SIA are reimbursed for reasonable travel expenses
associated with attending regular and special board and shareholder meetings.
Information with respect to the executive officers and directors of BIA and SIA
and the principal occupations of each are set forth in connection with these
Proposals No. 1 and 2 above. The Interim Advisory Agreements will terminate
automatically upon the effectiveness of the New Advisory Agreements.
THE NEW ADVISORY AGREEMENTS. Copies of the New Advisory Agreements are set
forth as Exhibits A(1) and A(2) to this Proxy Statement. If approved by
shareholders, the New Advisory Agreements will become effective on the date of
such approval and continue initially for a two-year period and continue for
successive annual periods thereafter, provided such continuance is approved at
least annually by (a) a majority of the Board of Directors who are not
"interested persons" of the Fund (as that term is used in the 1940 Act) and a
majority of the full Board of Directors or (b) a 1940 Act Majority Vote. The New
Advisory Agreements are terminable, without penalty, on 60 days' written notice
by the Board of Directors of the Fund or by BIA or SIA, as the case may be, upon
written notice to the other party to the Agreement. The New Advisory Agreements
will terminate automatically upon assignment (as defined in the 1940 Act).
Under each New Advisory Agreement, both BIA and SIA are jointly responsible
for making investment decisions, supplying investment research and portfolio
management services, placing purchase and sale orders for portfolio
transactions, making asset allocation decisions for the Fund and determining the
extent and nature of the Fund's leverage. The New Advisory Agreements also
provide that the relevant Proposed Adviser will bear all expenses in connection
with its performance, including fees that it might pay to consultants, except
that the Fund is responsible for reimbursing the Advisers for reasonable travel
expenses associated with attending regular and special board and shareholder
meetings.
22
Pursuant to the New Advisory Agreements, the Proposed Advisers would
receive an annual fee, payable monthly, in an aggregate amount calculated at a
rate of 1.25% of the value of the Fund's average monthly net assets (the
"Proposed Fee"). For purposes of calculating the Proposed Fee, the Fund's
average monthly net assets will be deemed to be the average monthly value of the
Fund's total assets minus the sum of the Fund's liabilities (which liabilities
do not include leverage borrowings such as bank or institutional borrowings,
preferred stock, bonds, debentures, etc.) and accrued dividends. If shareholders
approve Proposal Nos. 5, 6 and 7, thus allowing the Fund to issue leverage, the
Proposed Fee would also be charged against the principal amount of the issued
leverage. The following fee table is an example of how the Proposed Fees would
be affected if the Fund issues leverage to the extent of 1/3 of total assets:
Pro Forma Advisory Fees Comparing Leveraged to Non-Leveraged
Common Total Assets Total Annual
Advisory Fee Equity Leverage Total Assets Advisory Fee
------------ ------ -------- ------------ ------------
Pro Forma Advisory Fees WITHOUT leverage 1.25% $47,000,000 $0 $47,000,000 $587,500
Pro Forma Advisory Fees WITH leverage 1.25% $47,000,000 $23,500,000 $70,500,000 $881,250
Notably, approval of Proposal Nos. 5, 6 and 7 only permits, but does not
require, the Fund to issue leverage. The Proposed Advisers have made no specific
proposal to the Board for leveraging the Fund and any such proposal would have
to be presented to and approved by the Board prior to its implementation.
However, upon shareholder approval of Proposal Nos. 5, 6 and 7, issuance of
leverage and the amount of leverage issued will be left entirely up to and in
the discretion of the Board. There can be no assurance that the Fund will issue
leverage and, if issued, the amount of leverage.
The Proposed Fee will be split between the two Proposed Advisers, 25% to
BIA and 75% to SIA. This percentage split may be changed from time to time by
approval of the Board without shareholder approval so long as the gross advisory
fee paid by the Fund is not increased. Notwithstanding the foregoing fee, under
the New Advisory Agreements, the Proposed Advisers have agreed that until the
Fund has invested at least 50% of its assets in common stocks, the Proposed
Advisers will waive a portion of the Proposed Fee to the extent such fee exceeds
the Prior Fee. For example, in fiscal year 2001 the Prior Fee was approximately
0.71%; hence, under similar circumstances, the Proposed Advisers would waive
0.54%.
As of January 25, 2002, the Fund's net assets equaled approximately $47
million. If the fee structure described in the New Advisory Agreement was in
effect on that date, assuming that at least 50% of the Fund's assets were
invested in common stocks on that date, total advisory fees paid by the Fund
would have been $587,500 or 1.25% of the Fund's average monthly net assets on an
annual basis. During the fiscal year ending June 30, 2001, VALIC was paid
$349,627 under the Prior Fee. As mentioned above, based on the Fund's assets on
June 30, 2001, the Prior Fee was 71 basis points. For comparison purposes, if
the Proposed Fee had been in effect during fiscal year 2001, based on its
end-of-fiscal-year assets, the Fund would have paid $612,375 in advisory fees.
This would represent an increase of $263,107, or a 75% increase with respect to
the fees actually paid VALIC for the same period.
The New Advisory Agreements provide that BIA and SIA will be indemnified by
the Fund for losses, claims and expenses not caused by BIA and SIA's willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under the
agreement.
Fees and Expenses
The following table shows the Fund's expenses as of June 30, 2001 (as
adjusted), and pro forma expenses giving effect to the proposed changes in the
Fund's investment advisory arrangements and the recent change to add Fund
Administrative Services, L.L.C., an affiliate of the Proposed Advisers, as
Administrator of the Fund.
23
Table of Fees and Expenses - Historical and Pro Forma
For Fiscal Year
Ending June 30, 2001
(as adjusted) Pro Forma* Difference
Shareholder Transaction Expenses
Dividend Reinvestment Plan Fees None None None
Annual Operating Expenses
Management Fee 0.70% 1.25% 0.55%
Other Expenses 0.56%** 0.73% 0.17%**
------- ----- ---------
Total Annual Operating Expenses 1.26% 1.98% 0.72%**
*The pro forma information shown assumes that Proposals 1, 2 and 3 in this
Proxy have been approved by shareholders, and that at least 50% of the Fund's
assets have been invested in common stocks. The Pro Forma Other expenses have
been estimated.
**The Fund experienced expenses associated with a proxy contest in the
fiscal year ending 6/30/01. Without these proxy expenses, the Fund's "Other
Expenses" were 1.12% and the Total Annual Operating Expenses were 1.82%.
Example
The following example illustrates the projected dollar amount of cumulative
expenses that would be incurred over various periods with respect to a
hypothetical investment in the Fund. These amounts are based upon payment by the
Fund of historical and pro forma expenses at levels set forth in the table
above.
A common stockholder would pay the following expenses on a $1,000
investment, assuming a 5% annual return:
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------
Current* $13 $42 $72 $159
Pro Forma** $23 $65 $110 $234
*Current expenses are based on estimated total expenses for the current
period of 1.31% which consists of estimated Advisory fees of .72% and estimated
other expenses of .59%. The change in the expenses is due to the decline in
total net assets.
**Absent extraordinary one-time expenses relating to this proxy
solicitation, Pro Forma expenses would have been $20, $63, $108, and $232,
respectively, for the 1, 3, 5, and 10 year periods.
The pro forma information shown assumes that Proposals No. 1 and 2 have
been approved and that at least 50% of the Fund's assets are invested in common
stocks.
The foregoing table is to assist you in understanding the various costs and
expenses that a Common Stock investor in the Fund will bear directly or
indirectly. The assumed 5% annual return is not a prediction of, and does not
represent, the projected or actual performance of the Fund's common stock.
Actual expenses and annual rates of return may be more or less than those
assumed for the purposes of the foregoing example.
24
DIFFERENCES BETWEEN THE VALIC ADVISORY AGREEMENT, THE INTERIM ADVISORY
AGREEMENTS AND THE NEW ADVISORY AGREEMENTS.
The Interim Advisory Agreements with the Proposed Advisers are
substantially similar to the VALIC Agreement and the Interim VALIC Agreement
except as follows:
o The advisory fee differs;
o The parties to the contracts differ;
o The commencement dates differ;
o The choice of governing law differs;
o The Interim Advisory Agreements contemplate the delegation by BIA of
certain portfolio management and other responsibilities to SIA or other
sub-advisers, while the VALIC agreements contemplate a single adviser;
o The Interim Advisory Agreements provide for indemnification of BIA and SIA
by the Fund for losses not resulting from the relevant adviser's willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties under the relevant Agreement, and provides for
advances for payment of expenses for which indemnification is sought, while
the VALIC Agreements do not provide for indemnification of the adviser or
advances;
o The Interim Advisory Agreements provide for the Fund to bear the reasonable
traveling expenses to attend Board meetings for the Fund's executive
officers who are officers of the Proposed Advisers and the Proposed
Advisers' portfolio managers or the portfolio manager of any sub-adviser
primarily responsible for managing all or a portion of the Fund's assets,
while the VALIC Agreements do not have such a provision;
o The VALIC Agreements provide for the payment of up to $50,000 by the Fund
to VALIC for administrative services, while the Interim Advisory Agreements
do not contain such a provision.
The New Advisory Agreements are substantially similar to the Interim
Advisory Agreements except for the fee charged and the commencement dates.
In executing transactions for the Fund and selecting brokers or dealers,
the Advisers will use their best efforts to seek the best overall terms
available. In selecting brokers or dealers to execute any transaction and in
evaluating the best overall terms available, the Advisers may consider the
brokerage and research services (as those terms are defined in Section 28(e) of
the Securities Exchange Act of 1934) provided to the Fund and/or other accounts
over which the Advisers or any affiliate exercise investment discretion.
Administration Agreement
The Fund and Fund Administrative Services, L.L.C. ("FAS") are parties to an
Administration Agreement dated January 23, 2002 (the "Administration
Agreement"). FAS is owned by the Members, who, as indicated above, are also the
owners of BIA and are part of the Horejsi Group. FAS is headquartered at 200 S.
Santa Fe, #4, PO Box 6043, Salina, KS 67401 and has offices in Colorado at 1680
38th Street, Suite 800, Boulder, Colorado 80301. As previously mentioned, both
Mr. Horejsi and Ms. Ciciora, one of the Fund's "interested" directors, are
discretionary beneficiaries under the Lola Brown Trust No. 1B, one of the
Members of FAS, and under the trusts who own Evergreen Atlantic, LLC, the other
Member of FAS.
Under the Administration Agreement, FAS provides administrative,
accounting, executive management and certain other services to the Fund
including: providing the Fund's principal offices in Colorado and executive
officers, overseeing the operations of the Fund, overseeing and administering
all contracted service providers, making recommendations to the Board regarding
policies of the Fund, conducting shareholder relations, authorizing expenses and
numerous other tasks. In addition, FAS is responsible for engaging service
providers for and paying all fees associated with Fund's transfer agency and
custody requirements. FAS currently intends to delegate the provision of
accounting and administrative services to third parties. Pursuant to the
Administration Agreement, the Fund pays FAS a monthly fee, calculated at an
annual rate of .30% of the value of the Fund's average monthly net assets. As
previously mentioned, pursuant to the Administration Agreement, FAS pays and is
solely responsible for all custody and transfer agency fees incurred by the
Fund, as well as the fees payable to any third parties retained by it to provide
services to the Fund. Based on the Fund's current assets and pro forma
calculations, FAS will receive compensation net of custody and transfer agency
fees in the approximate amount of $70,500 or .16% on an annualized basis. FAS
will continue to provide services to the Fund after the New Advisory Agreements
are approved.
25
Required Vote
Approval of each of Proposal No. 1 and Proposal No. 2 requires an
independent 1940 Act Majority Vote. However, neither Proposal No. 1 nor Proposal
No. 2 will be implemented unless both proposals are independently approved by
shareholders. If sufficient votes are not obtained to approve both of the
proposals, the Board will consider what further action to take, including
resoliciting shareholder approval and/or modifying aspects of the proposals.
THE BOARD OF DIRECTORS, INCLUDING ALL OF THE NON-INTERESTED DIRECTORS,
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" PROPOSAL NO. 1.
THE BOARD OF DIRECTORS, INCLUDING ALL OF THE NON-INTERESTED DIRECTORS,
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" PROPOSAL NO. 2.
PROPOSAL 3: TO APPROVE OR DISAPPROVE
A CHANGE TO THE FUND'S INVESTMENT OBJECTIVE
SUMMARY OF PROPOSAL
CHANGE IN OBJECTIVE. The Board of Directors has proposed that the Fund's
investment objective be changed to total return. Currently, the Fund's
investment objective is "providing a high level of current income for its
shareholders through investment in a diversified portfolio composed primarily of
fixed income securities which management considers to be of high-quality". Total
return is comprised of long-term capital appreciation and income from both
equity and fixed income securities. The rationale for the proposed change and
the anticipated impact of the change on the Fund are described under "Proposed
Changes to Investment Focus" above.
NAME CHANGE. In connection with and subject to shareholder approval of the
foregoing change to the investment objective, the Fund would change its name to
"Boulder Growth & Income Fund, Inc." Accordingly, the Board approved an
amendment to the Fund's Articles of Incorporation to change the Fund's name to
"Boulder Growth & Income Fund, Inc." The Fund will also change its New York
Stock Exchange ticker symbol to "BIF".
REQUIRED VOTE. Approval of this proposal to change the Fund's investment
objective would require a 1940 Act Majority Vote. Changing the name of the Fund
may be effected without shareholder approval, although the Board does not intend
to change the name of the Fund to the proposed name unless shareholders approve
a change in the Fund's investment objective under this Proposal No. 3.
THE BOARD OF DIRECTORS, INCLUDING ALL OF THE NON-INTERESTED DIRECTORS,
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" PROPOSAL NO. 3.
PROPOSAL 4: TO APPROVE OR DISAPPROVE A CHANGE TO THE FUND'S
CLASSIFICATION AND RELATED FUNDAMENTAL INVESTMENT
RESTRICTION TO MAKE THE FUND A NON-DIVERSIFIED INVESTMENT COMPANY
Summary of Proposal. The Fund is currently classified as a diversified
investment company within the meaning of the 1940 Act, and has a fundamental
investment restriction embodying the characteristics of this type of fund. Under
the 1940 Act, a "diversified company" must have no less than 75% of its
portfolio diversified in holdings the value of each of which is no more than 5%
of the company's total assets and which represent no more than 10% of the voting
securities of any one issuer. There are no such restrictions on the remaining
25% of the portfolio. The Board of Directors has proposed a change in the Fund's
classification and an amendment to the Fund's fundamental investment policy that
would change the Fund from a "diversified company" to a "non-diversified"
company under the 1940 Act. If the Fund changes to a "non-diversified" status
and eliminates its fundamental policy prohibiting investing greater-than-5%
positions in any issuer (see Proposal No. 9 below), the Fund will not be limited
by the 1940 Act in the proportion of its assets that may be invested in the
obligations of a single issuer. However, the Fund intends to comply with the
diversification requirements imposed by the U.S. Internal Revenue Code of 1986
for qualification as a regulated investment company, under which the minimum
26
percentage of the portfolio that must be "diversified" is 50%, so long as no
single investment exceeds 25% of total assets. As a non-diversified investment
company, since the Fund may invest a greater proportion of its assets in the
obligations of a smaller number of issuers, the Fund may be subject to greater
risks with respect to portfolio securities.
REASONS FOR PROPOSAL. Management believes that changing to a
non-diversified status will provide valuable flexibility and opportunities and
ultimately enhance the Fund's total return. Management wants the Fund to become
a substantial and permanent owner of high caliber companies when their stock is
reasonable in price. Since such opportunities are rare, when the Fund finds one,
the Proposed Advisers want the flexibility to buy a large enough position to
make a difference. The current diversification status significantly restricts
the Fund's ability to do this.
RISKS ASSOCIATED WITH NON-DIVERSIFICATION. This proposal would permit the
Fund to concentrate a larger percentage of its assets (i.e., greater than 5% in
any one issuer with respect to 50% of the Fund's assets) in a single or just a
relatively few common stocks. Consequently, the overall volatility of the Fund's
NAV as well as the market price for its shares may be greater than that of a
comparable "diversified" mutual fund. This is because the appreciation or
depreciation of any of the Fund's concentrated positions will have a greater
impact on the net asset value of the Fund since those concentrated positions
represent a larger component of the Fund's assets.
VOTING REQUIREMENT. Approval of this Proposal No. 4 requires a 1940 Act
Majority Vote. Proposal No. 4 cannot be implemented unless Proposal No. 9 is
also approved.
THE BOARD OF DIRECTORS, INCLUDING ALL OF THE NON-INTERESTED DIRECTORS,
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" PROPOSAL NO. 4.
PROPOSAL 5: TO APPROVE OR DISAPPROVE A CHANGE TO THE
FUND'S FUNDAMENTAL INVESTMENT RESTRICTION ON BORROWING
SUMMARY OF PROPOSAL. The Board of Directors has proposed changing the
Fund's fundamental investment policy which restricts borrowing. Currently, one
of the Fund's investment restrictions provides that the Fund may not:
Borrow money, except that the Fund may borrow money on an unsecured basis
to purchase securities, provided that the aggregate amount of such
borrowings at the date such borrowings are incurred does not exceed 25% of
the value of the total assets of the Fund after giving effect to the
borrowings [Omitted Text].
Proposal No. 5 would modify this restriction such that the Fund may not:
Borrow money in an amount exceeding the maximum permitted under the
Investment Company Act of 1940, as amended.
REASONS FOR PROPOSAL. Presently, the Fund's ability to borrow is limited.
Management believes that well-managed leverage can have a beneficial effect on
shareholders' total return. If properly managed, leverage can provide enough
additional income to pay a substantial portion of Fund expenses, if there is a
positive spread between the borrowed money and the return on the assets acquired
with such moneys. Although the Fund will likely focus its use of leverage on
producing income, the Fund may also purchase other income producing securities
(e.g., RICs, REITs and dividend-paying common stocks) or non-dividend-paying
common stocks for long-term appreciation. The proposed change to the borrowing
restriction would not give management carte blanche to borrow as the amount of
borrowing would be limited to the maximum amount permitted by law, which is the
limit contained in Section 18 of the 1940 Act. That limit is one-third of the
Fund's total assets (including the amount borrowed). Depending on how such a
borrowing might be structured, the borrowing may, in certain circumstances,
require shareholder approval. If this Proposal No. 5 is approved, the Fund could
then borrow from banks, institutions or other entities, such as through margin
purchases or reverse repurchase agreements. The Board believes that the proposed
amendment gives the Fund added flexibility to borrow in order to increase the
Fund's return.
27
RISKS ASSOCIATED WITH LEVERAGE. The Fund will be authorized to borrow money
from banks and other entities in an amount equal to up to 33-1/3% of the Fund's
total assets (including the amount borrowed), less all liabilities and
indebtedness other than the borrowing, and may use the proceeds of the
borrowings for investment purposes. Borrowings create leverage, which is a
speculative characteristic. Although the Fund may borrow continuously, it will
do so only when management believes that borrowing will benefit the Fund after
taking into account considerations such as the costs of the borrowing and the
likely investment returns on the securities purchased with the borrowed monies.
The extent to which the Fund will borrow will depend upon the availability of
credit. No assurance can be given that the Fund will be able to borrow on terms
acceptable to the Fund.
Borrowing by the Fund will create an opportunity for increased return but,
at the same time, will involve special risk considerations. Leveraging resulting
from borrowing will magnify declines as well as increases in the net asset value
of the Common Stock and in the net return on the Fund's portfolio. Although the
principal of the Fund's borrowings will be fixed, the Fund's assets may change
in value during the time a borrowing is outstanding, thus increasing exposure to
capital risk. To the extent the return derived from the assets obtained with
borrowed funds exceeds the interest and other expenses that the Fund will have
to pay, the Fund's net return will be greater than if borrowing was not used.
Conversely, however, if the return from the assets obtained with borrowed funds
is not sufficient to cover the cost of borrowing, the net return of the Fund
will be less than if borrowings were not used, and therefore the amount
available for distribution to the Fund's shareholders as dividends will be
reduced.
The Fund expects that some or all of its borrowings may be made on a
secured basis (see Proposal No. 6 regarding Pledging of Assets). If they are,
the Fund's custodian will either segregate the assets securing the Fund's
borrowings for the benefit of the Fund's lenders or arrangements will be made
with a suitable sub-custodian, which may include a lender. If the assets used to
secure the borrowing decrease in value, the Fund may be required to pledge
additional collateral to the lender in the form of cash or securities to avoid
liquidation of those assets. The rights of any lenders to the Fund to receive
payments of interest on and repayments of principal of borrowings will be senior
to the rights of the Fund's shareholders, and the terms of the Fund's borrowings
may contain provisions that limit certain activities of the Fund and could
result in precluding the purchase of instruments that the Fund would otherwise
purchase.
The Fund may borrow by entering into reverse repurchase agreements with any
member bank of the Federal Reserve System and any broker-dealer or any foreign
bank that has been determined by the investment adviser to be creditworthy.
Under a reverse repurchase agreement, the Fund would sell securities and agree
to repurchase them at a mutually agreed date and price. At the time the Fund
enters into a reverse repurchase agreement, it will establish and maintain a
segregated account, with its custodian or a designated sub-custodian containing
cash or liquid obligations having a value not less than the repurchase price
(including accrued interest). Reverse repurchase agreements involve the risk
that the market value of the securities purchased with the proceeds of the sale
of securities received by the Fund may decline below the price of the securities
the Fund is obligated to repurchase. In the event the buyer of securities under
a reverse repurchase agreement files for bankruptcy or becomes insolvent, the
buyer or its trustee or receiver may receive an extension of time to determine
whether to enforce the Fund's obligation to repurchase the securities, and the
Fund's use of the proceeds of the reverse repurchase agreement may effectively
be restricted pending the decision. Reverse repurchase agreements will be
treated as borrowings for purposes of calculating the Fund's borrowing
limitation.
The Fund may, in addition to engaging in the transactions described above,
borrow money from banks for temporary or emergency purposes (including, for
example, clearance of transactions, share repurchases, tender offers or payments
of dividends to shareholders) in an amount not exceeding 5% of the value of the
Fund's total assets (including the amount borrowed).
VOTING REQUIREMENT. Approval of this Proposal No. 5 requires a 1940 Act
Majority Vote.
THE BOARD OF DIRECTORS, INCLUDING ALL OF THE NON-INTERESTED DIRECTORS,
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" PROPOSAL NO. 5.
PROPOSAL 6: TO APPROVE OR DISAPPROVE CHANGING THE
FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
28
REGARDING THE PLEDGING OF ASSETS
SUMMARY OF PROPOSAL. The Board of Directors has proposed changing the
Fund's fundamental investment policy which restricts the Fund pledging its
assets. Currently, one of the Fund's investment restrictions provides that the
Fund may not:
Pledge its assets except that, subject to applicable limitations under
Federal Reserve Board rules, the Fund may pledge up to 15% of the market or
other fair value of its total assets to secure borrowings effected from
banks for temporary or emergency purposes in an amount not exceeding 5% of
the value of its total assets.
Proposal No. 6 would change this restriction such that the Fund may not:
Pledge, mortgage or hypothecate its assets except in connection with
permitted borrowings and to the extent related to transactions in which the
Fund is authorized to engage.
This policy would be changed from a fundamental policy to a non-fundamental
policy, which means that it could be further changed in the future by Board
action alone without the necessity of shareholder approval.
REASONS FOR PROPOSAL. Presently, the Fund is prohibited from pledging its
assets except in very limited circumstances. Elimination of the pledge
restriction would not give management carte blanche to pledge its assets as the
Fund would be limited to the maximum amount permitted by law, which is the limit
contained in Section 18 of the 1940 Act. That limit is one-third of the Fund's
total assets (including the amount borrowed). If this Proposal No. 6 is
approved, the Fund could pledge its assets to banks or other entities in
connection with a leveraging strategy, such as through margin purchases or
reverse repurchase agreements, and would make the pledging limit consistent with
the new borrowing limit. In addition, the Fund would be able to pledge assets in
connection with entering into certain kinds of transactions that often involve
depositing assets in escrow to secure the Fund's obligations, such as options
and future contracts. The Fund has no current intention to invest in these types
of contracts, but changing the pledging restriction in the manner proposed would
eliminate a potential barrier to doing so. The Board believes that the proposed
amendment gives the Fund added flexibility to borrow in order to increase the
Fund's return.
RISKS ASSOCIATED WITH PLEDGING ASSETS. Pledged assets cannot be sold or
transferred unless equivalent assets are substituted in their place or it is no
longer necessary to pledge them. As a result, there is a possibility that
pledging a large percentage of the Fund's assets could impede portfolio
management. In addition, pledging assets may involve certain risks in the event
of default or insolvency of the party to whom the assets are pledged, including
possible delays or restrictions upon the Fund's ability to recover the pledged
securities or to dispose of such securities. Because most pledges are expected
to occur in connection with borrowings, shareholders should also consider the
risks associated with borrowing in voting on this Proposal. See Leverage
discussion under Proposal No. 5 above.
VOTING REQUIREMENT. Approval of this Proposal No. 6 requires a 1940 Act
Majority Vote.
THE BOARD OF DIRECTORS, INCLUDING ALL OF THE NON-INTERESTED DIRECTORS,
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" PROPOSAL NO. 6
PROPOSAL 7: TO APPROVE OR DISAPPROVE CHANGING THE
FUND'S FUNDAMENTAL INVESTMENT RESTRICTION PROHIBITING ISSUANCE OF
SENIOR SECURITIES.
SUMMARY OF PROPOSAL. The Board of Directors has proposed changing the
Fund's fundamental investment policy which prohibits the Fund's issuing senior
securities. Currently, one of the Fund's investment restrictions provides that
the Fund may not:
Issue any senior securities (as defined in the Investment Company Act of
1940, as amended) [Text Omitted].
29
Proposal No. 7 would change this restriction such that the Fund may not:
Issue any senior securities except as permitted under the Investment
Company Act of 1940, as amended.
REASONS FOR PROPOSAL. Presently, the Fund is prohibited from issuing senior
securities. Under the 1940 Act's broad definition of "senior securities", the
leveraging by use of bank and institutional borrowings which would otherwise be
permitted under Proposal No. 5 above (Change of Borrowing Restriction) would be
"senior securities" and thus prohibited by the Fund's present fundamental
policies. The current restriction would also preclude the issuance of preferred
stock. Similar to the rationale discussed in Proposal No. 5 above, management
believes that a relatively small amount of well-managed leverage, which may be
in the form of debt or preferred stock, can have a very beneficial effect on
shareholder return. It should be noted that the Horejsi Trust successfully waged
a proxy contest in 2000 to prevent changing the Fund's fundamental policy
regarding issuance of senior securities. However, at that time, the Horejsi
Trust opposed issuing senior securities in the interest of protecting its
investment in the Fund (i.e., it believed that VALIC had not demonstrated an
ability to effectively manage a leveraged portfolio). In contrast, the Horejsi
Trust believes that, in managing BTF, the Proposed Advisers have demonstrated an
ability to effectively manage leverage and thus supports Proposal Nos. 5, 6 and
7.
RISKS ASSOCIATED WITH LEVERAGE. Since the issuance of senior securities
creates leverage, the risks associated with leveraging described under Proposal
5 above apply equally to this Proposal 7. In addition, the Fund's investments
may be subject to certain investment guidelines and minimum asset tests if the
Fund were to obtain a rating for any debt securities or preferred stock it
issued, which limitations may limit the Fund's flexibility in investing its
assets. See Leverage discussion under Proposal No. 5 above.
VOTING REQUIREMENT. Approval of this Proposal No. 7 requires a 1940 Act
Majority Vote.
THE BOARD OF DIRECTORS, INCLUDING ALL OF THE NON-INTERESTED DIRECTORS,
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" PROPOSAL NO. 7.
PROPOSAL 8: TO APPROVE OR DISAPPROVE CHANGING THE
FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
REGARDING INVESTMENT IN REITS AND OTHER REAL ESTATE SECURITIES
SUMMARY OF PROPOSAL. The Board of Directors has proposed changing the
Fund's fundamental investment policy which prohibits the Fund from investing in
real estate investment trusts. Currently, one of the Fund's investment
restrictions provides that the Fund may not:
Purchase or sell real estate or securities issued by real estate investment
trusts, except that the Fund may purchase or sell securities secured by
real estate or interests therein issued by companies owning real estate or
interests therein.
Proposal No. 8 would change this restriction such that the Fund may not:
Purchase or sell real estate, except that the Fund may purchase or sell
real estate investment trusts and securities secured by real estate or
interests therein issued by companies owning real estate or interests
therein.
REASONS FOR THE PROPOSAL. The proposed amendment would allow the Fund to
invest in real estate investment trusts. Real estate investment trusts or REITs
are a potential investment opportunity in the Proposed Advisers' opinion because
they offer good sources of income and provide diversification through a wide
spectrum of real estate holdings, often nationwide. It is not unusual for a REIT
to hold dozens, or even hundreds of different income-producing properties. REITs
are managed by professional real estate and property managers, usually
specializing in one or several real estate classes (e.g., hotel, industrial,
office, apartment, residential, etc.). The Fund would invest only in
publicly-traded REITs which are traded on one of the major U.S. securities
exchanges. REITs are "pass through" securities, similar to registered investment
companies under the 1940 Act, in that they are required to pass all of their net
investment income through to the underlying shareholders. This pass through
occurs before taxes. Because real property is often a hedge against inflation,
REITs can offer some protection, to the extent that the Fund invests in REITs,
against large or prolonged periods of inflation.
30
The Proposed Advisers may invest up to 25% of the Fund assets in REITs.
While the percentage invested in REITs over time can be expected to be close to
25%, it will not exceed 25% at the time of purchase, as the Fund is not
permitted to be concentrated in any industry.
RISKS ASSOCIATED WITH INVESTING IN REITS. There are risks associated with
investing in REITs: Property valuations may rise or fall with local or national
economic conditions. In addition, the dividend income paid out by a REIT may be
reduced or eliminated depending on the performance of the underlying properties,
including occupancy and lease rates. The Fund also bears its share of a REIT's
expenses while still paying the advisory fee on the Fund assets so invested.
VOTING REQUIREMENT. Approval of this Proposal No. 8 requires a 1940 Act
Majority Vote.
THE BOARD OF DIRECTORS, INCLUDING ALL OF THE NON-INTERESTED DIRECTORS,
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" PROPOSAL NO. 8.
PROPOSAL 9: TO APPROVE OR DISAPPROVE THE DELETION OF THE
FUND'S FUNDAMENTAL INVESTMENT RESTRICTION PROHIBITING THE FUND FROM
HOLDING GREATER THAN 5% OF ASSETS IN ONE ISSUER
SUMMARY OF PROPOSAL. The Board has proposed elimination of the Fund's
fundamental investment policy which prohibits the Fund's investing greater than
5% in any one issuer (the "5% Restriction"). Currently, one of the Fund's
investment restrictions provides that the Fund may not:
Invest in the securities of any one issuer, other than the United States
Government, if immediately after such investment more than 5% of the value
of its total assets would be invested in such issuer or it would own more
than 10% of such issuer's outstanding voting securities.
Proposal No. 9 would eliminate this restriction in its entirety.
REASONS FOR PROPOSAL. As discussed under Proposal No. 3 above, the Fund is
presently a "diversified" fund. Proposal No. 4 seeks to change the Fund to a
"non-diversified" fund, thus permitting it to invest a larger portion of its
assets in a small number of what management considers to be high-quality
companies. The 5% restriction further limits the Fund's ability to purchase
positions in any single issuer in excess of 5% of its assets. Although
eliminating the 5% restriction coupled with changing the Fund to a
non-diversified fund would permit investment in a greater portion of assets in a
single issuer, the Fund will still be subject to the diversification limitations
of the Internal Revenue Code (i.e., with respect to 50% of the Fund's portfolio,
the Fund must limit to 5% the portion of its assets invested in the securities
of a single issuer. There are no such limitations with respect to the balance of
the Fund's portfolio, although no single investment can exceed 25% of the Fund's
total assets.) Eliminating the 5% restriction is part and parcel to effecting
the Fund's non-diversified status as recommended under Proposal No. 4.
RISKS ASSOCIATED WITH ELIMINATING 5% RESTRICTION. See risks described above
under Proposal No. 4, which apply equally to this Proposal No. 9.
VOTING REQUIREMENT. Approval of this Proposal No. 9 requires a 1940 Act
Majority Vote.
THE BOARD OF DIRECTORS, INCLUDING ALL OF THE NON-INTERESTED DIRECTORS,
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" PROPOSAL NO. 9.
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 2002 must be
received by the Fund for consideration for inclusion in the Fund's proxy
statement relating to the meeting no later than May 28, 2002.
31
ADDITIONAL INFORMATION
Investment Advisers, and Administrator
Boulder Investment Advisers, L.L.C. serves as Investment Co-adviser to the
Fund and its business address is 1680 38th Street, Suite 800, Boulder, Colorado
80301. Stewart Investment Advisers serves as Investment Co-adviser to the Fund
and its business address is Bellerive, Queen Street, St. Peter, Barbados. PFPC
Inc. acts as the transfer agent to the Fund and is located at 101 Federal
Street, Boston, Massachusetts 02110. Fund Administrative Services, L.L.C.,
serves as administrator to the Fund and is located at 1680 38th Street, Suite
800, Boulder, Colorado 80301.
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
is management 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.
--------------------------------------------------------------------------------
32
EXHIBIT A(1)
Investment Advisory Agreement with Stewart Investment Advisers
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT (this "Agreement") is made as of the
_____ day of April, 2002, by and among STEWART INVESTMENT ADVISERS, a Barbados
international business company (the "Adviser") and [USLIFE INCOME/BOULDER GROWTH
& INCOME] FUND, INC., a Maryland corporation (the "Fund").
1. Investment Description; Appointment. The Fund desires to employ its
capital by investing and reinvesting in investments of the kind and in such
manner and to such extent as may from time to time be approved by the Board of
Directors of the Fund (the "Board"). The Fund desires to employ and hereby
appoints the Adviser to act as investment adviser to the Fund. Adviser hereby
accepts the appointment and agrees to furnish the services described herein for
the compensation set forth below.
2. Services as Investment Adviser. Subject to the supervision and direction
of the Board, the Adviser will (a) act in accordance with the Investment Company
Act of 1940 (the "1940 Act") and the Investment Advisers Act of 1940, as the
same may be from time to time amended, (b) manage the Fund's portfolio on a
discretionary basis in accordance with its investment objectives and policies,
(c) make investment decisions and exercise voting rights in respect of portfolio
securities for the Fund, (d) place purchase and sale orders on behalf of the
Fund, (e) employ, at its own expense, professional portfolio managers and
securities analysts to provide research services to the Fund, (f) determine the
portion of the Fund's assets to be invested, from time to time, in various asset
classes (e.g., common stocks, fixed income securities, cash equivalents), (g)
determine the portion of the Fund's assets to be leveraged, from time to time,
and the form that such leverage will take, and (h) monitor and evaluate the
services provided by the Fund's investment sub-adviser(s), if any, under the
terms of the applicable investment sub-advisory agreement(s). In providing these
services, the Adviser will provide investment research and supervision of the
Fund's evaluation and, if appropriate, sale and reinvestment of the Fund's
assets. In addition, the Adviser will furnish the Fund with whatever statistical
information the Fund may reasonably request with respect to the securities that
the Fund may hold or contemplate purchasing.
3. Co-Advisor to the Fund. Subject to the approval of the Board and where
required, the Fund's shareholders, the Fund will engage an investment
co-adviser, Boulder Investment Advisers, LLC, a Colorado limited liability
company and registered investment adviser under the Investment Advisers Act of
1940, in respect of all or a portion of the Fund's assets (the "Co-Adviser").
The Adviser and the Co-Adviser will be jointly responsible for providing the
services described in subparagraphs (b), (c), (d), (e), (f) and (g) in Paragraph
2 above and Paragraphs 5 and 6 below (Information Provided to Fund) with respect
to the Fund's assets, although the Adviser will have primary responsibility for
all record-keeping and day-to-day business activities relating to the investment
operations of the Fund. In the event that the Co-Adviser's engagement is
terminated, the Adviser shall be responsible for furnishing the Fund with the
services theretofore performed by such Co-Adviser under the applicable
investment advisory agreement or arranging for a successor co-adviser or
sub-adviser, as the case may be, to provide such services under terms and
conditions acceptable to the Fund and the Board and subject to the requirements
of the 1940 Act.
4. Engagement of Sub-Advisers to the Fund. Subject to the approval of the
Board and where required, the Fund's shareholders, the Adviser may engage an
investment sub-adviser or sub-advisers to provide advisory services in respect
of all or a portion of the Fund's assets (the "Sub-Advised Portion") and may
delegate to such investment sub-adviser(s) all or a portion of the
responsibilities described in subparagraphs (b), (c), (d), (e), (f) and (g) in
Paragraph 2 above and Paragraph 6 below (Information Provided to Fund) with
respect to the Sub-Advised Portion. In the event that an investment
sub-adviser's engagement has been terminated, the Adviser shall be responsible
for furnishing the Fund with the services required to be performed by such
investment sub-adviser(s) under the applicable investment sub-advisory
agreements or arranging for a successor co-adviser or sub-adviser, as the case
may be, to provide such services under terms and conditions acceptable to the
Fund and the Board and subject to the requirements of the 1940 Act.
33
5. Brokerage. In executing transactions for the Fund and selecting brokers
or dealers, the Adviser will use its best efforts to seek the best overall terms
available. In assessing the best overall terms available for any Fund
transaction, the Adviser will consider all factors it deems relevant including,
but not limited to, breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker or
dealer and the reasonableness of any commission for the specific transaction and
on a continuing basis. In selecting brokers or dealers to execute any
transaction and in evaluating the best overall terms available, the Adviser may
consider the brokerage and research services (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934) provided to the Fund
and/or other accounts over which the Adviser or any affiliate exercises
investment discretion.
6. Information Provided to the Fund. The Adviser will use its best efforts
to keep the Fund informed of developments materially affecting the Fund, and
will, on its own initiative, furnish the Fund from time to time with whatever
information the Adviser believes is appropriate for this purpose.
7. Standard of Care. The Adviser shall exercise its best judgment in
rendering the services described herein. The Adviser shall not be liable for any
error of judgment or mistake of law or omission or any loss suffered by the Fund
in connection with the matters to which this Agreement relates, provided that
nothing herein shall be deemed to protect or purport to protect the Adviser
against any liability to the Fund to which the Adviser would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement ("Disabling Conduct"). The Fund will
indemnify the Adviser against, and hold it harmless from, any and all losses,
claims, damages, liabilities or expenses (including reasonable counsel fees and
expenses), including any amounts paid in satisfaction of judgments, in
compromise or as fines or penalties, not resulting from Disabling Conduct by the
Adviser. Indemnification shall be made only following (i) a final decision on
the merits by a court or other body before whom the proceeding was brought that
the Adviser was not liable by reason of Disabling Conduct, or (ii) in the
absence of such a decision, a reasonable determination, based upon a review of
the facts, that the Adviser was not liable by reason of Disabling Conduct by (a)
the vote of a majority of the Directors of the Fund who are neither "interested
persons" of the Fund nor parties to the proceeding ("disinterested non-party
Directors"), or (b) independent legal counsel in a written opinion. The Adviser
shall be entitled to advances from the Fund for payment of the reasonable
expenses incurred by it in connection with the matter to which it is seeking
indemnification in the manner and to the fullest extent permissible under the
law. The Adviser shall provide to the Fund a written affirmation of its good
faith belief that the standard of conduct necessary for indemnification by the
Fund has been met and a written undertaking to repay any such advance if it
should ultimately be determined that the standard of conduct has not been met.
In addition, at least one of the following additional conditions shall be met:
(a) the Adviser shall provide a security in form and amount acceptable to the
Fund for its undertaking; (b) the Fund is insured against losses arising by
reason of the advance; or (c) a majority of disinterested non-party Directors,
or independent legal counsel, in a written opinion, shall have determined, based
on a review of facts readily available to the Fund at the time the advance is
proposed to be made, that there is reason to believe that the Adviser will
ultimately be found to be entitled to indemnification.
8. Compensation. In consideration of the services rendered pursuant to this
Agreement, the Fund will pay the Adviser the Advisory Fee (as defined in the Fee
Schedule) such amount to be paid monthly, in the amount set forth in the fee
schedule attached hereto as Exhibit A (the "Fee Schedule"). The Advisory Fee
shall be the aggregate and entirety of all advisory fees to be paid by the Fund
and will be divided between the Adviser and the Co-Adviser as set forth in the
Fee Schedule, which fee split may be adjusted from time to time in the
discretion of the Board so long as the aggregate advisory fee does not exceed
the Advisory Fee. The fee payable to Adviser for any period shorter than a full
calendar month shall be prorated according to the proportion that such payment
bears to the full monthly payment.
9. Expenses. Except as indicated below, the Adviser will bear all expenses
in connection with the performance of its services under this Agreement,
including the fees payable to the Co-Adviser and to any investment sub-adviser
engaged pursuant to Paragraphs 3 or 4 of this Agreement. The Fund will bear
certain other expenses to be incurred in its operation, including organizational
expenses, taxes, interest, brokerage costs and commissions and stock exchange
fees; fees of Directors of the Fund who are not also officers, directors or the
employees of Adviser; Securities and Exchange Commission fees; state Blue Sky
qualification fees; charges of any custodian, any sub-custodians and transfer
and dividend-paying agents; insurance premiums; outside auditing and
34
legal expenses; costs of maintenance of the Fund's existence; membership fees in
trade associations; stock exchange listing fees and expenses; litigation and
other extraordinary or non-recurring expenses. Additionally, the Fund will bear
the reasonable travel-related expenses (or an appropriate portion thereof) to
attend Board of Directors' meetings for (i) the Fund's executive officers who
are also officers of the Adviser or the Co-Adviser and (ii) the Adviser's,
Co-Adviser's or a sub-adviser's portfolio manager(s) who are primarily
responsible for managing the Fund's portfolio.
10. Services to other Companies or Accounts. The Fund understands that the
Adviser now acts, or may act in the future as an investment adviser to fiduciary
and other managed accounts or other trusts, or as investment adviser to one or
more other registered or unregistered investment companies, and the Fund has no
objection to the Adviser so acting. The Fund understands that the persons
employed by Adviser to assist in the performance of the Adviser's duties
hereunder will not devote their full time to such service and nothing contained
herein shall be deemed to limit or restrict the right of the Adviser or any
affiliate of the Adviser to engage in and devote time and attention to other
businesses or to render services of whatever kind or nature.
11. Term of Agreement. This Agreement shall become effective as of the date
it is approved by a vote of a "majority" (as defined in the 1940 Act) of the
Fund's outstanding voting securities (the "Effective Date") and shall continue
for an initial two-year term and shall remain in effect from year to year so
long as such continuance is specifically approved by (a) a majority of the
Directors who are not "interested persons" of the Fund (as defined in the 1940
Act) and a majority of the full Board or (b) a majority of the outstanding
voting securities of the Fund (as defined in the 1940 Act). This Agreement is
terminable by a party hereto on sixty (60) days' written notice to the other
party. Any termination shall be without penalty and any notice of termination
shall be deemed given when received by the addressee.
12. No Assignment. This Agreement may not be transferred, assigned, sold or
in any manner hypothecated or pledged by any party hereto and will terminate
automatically in the event of its assignment (as defined in the 1940 Act). It
may be amended by mutual agreement, in writing, by the parties hereto.
13. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto.
14. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Colorado.
15. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original for all purposes, and together shall
constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
ADVISER: FUND:
STEWART INVESTMENT ADVISERS, a [USLIFE INCOME/BOULDER GROWTH & INCOME]
Barbados international business FUND, INC., a Maryland corporation
company
By: By:
------------------------------ ------------------------------
Glade L. Christensen Stephen C. Miller
Its: President Its: President
35
FEE SCHEDULE
Adviser shall be paid after the end of each calendar month, a fee for the
previous month computed at the annual rate of 1.25% of the value of the Fund's
average monthly net assets (the "Advisory Fee"). For purposes of calculating the
Advisory Fee, the Fund's average monthly net assets will be deemed to be the
average monthly value of the Fund's total assets minus the sum of the Fund's
liabilities (which liabilities do not include leverage borrowings such as bank
or institutional borrowings, preferred stock, bonds, debentures, etc.) and
accrued dividends.
Notwithstanding the foregoing, until such time as more than 50% of the
value of the Fund's assets are invested in equity securities, the Advisory Fee
shall be computed as follows: (i) 0.04167% of the net asset value of the Fund
less net investment income for such month as of the close of business on the
last business day of the month (0.50% on an annual basis); plus (ii) 2.5% of the
sum of (a) the Fund's dividend and interest income; less (b) interest on
borrowed funds during such month.
The Advisory Fee is the maximum aggregate fee that is to be paid to the
Adviser and any co-Adviser or sub-adviser under this and any other co-advisory
or sub-advisory agreements.
Fee Split Between Adviser and Co-Adviser
The Advisory Fee shall initially be split among the Adviser and Co-Adviser
25% to Boulder Investment Advisers LLC and 75% to Stewart Investment Advisers.
36
EXHIBIT A(2)
Investment Advisory Agreement with Boulder Investment Advisers, LLC
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT (this "Agreement") is made as of the
______ day of April, 2002, by and among BOULDER INVESTMENT ADVISERS, L.L.C., a
Colorado limited liability company (the "Adviser") and [USLIFE INCOME/BOULDER
GROWTH & INCOME] FUND, INC., a Maryland corporation (the "Fund").
1. Investment Description; Appointment. The Fund desires to employ its
capital by investing and reinvesting in investments of the kind and in such
manner and to such extent as may from time to time be approved by the Board of
Directors of the Fund (the "Board"). The Fund desires to employ and hereby
appoints the Adviser to act as investment adviser to the Fund. Adviser hereby
accepts the appointment and agrees to furnish the services described herein for
the compensation set forth below.
2. Services as Investment Adviser. Subject to the supervision and direction
of the Board, the Adviser will (a) act in accordance with the Investment Company
Act of 1940 (the "1940 Act") and the Investment Advisers Act of 1940, as the
same may be from time to time amended, (b) manage the Fund's portfolio on a
discretionary basis in accordance with its investment objectives and policies,
(c) make investment decisions and exercise voting rights in respect of portfolio
securities for the Fund, (d) place purchase and sale orders on behalf of the
Fund, (e) employ, at its own expense, professional portfolio managers and
securities analysts to provide research services to the Fund, (f) determine the
portion of the Fund's assets to be invested, from time to time, in various asset
classes (e.g., common stocks, fixed income securities, cash equivalents), (g)
determine the portion of the Fund's assets to be leveraged, from time to time,
and the form that such leverage will take, and (h) monitor and evaluate the
services provided by the Fund's investment sub-adviser(s), if any, under the
terms of the applicable investment sub-advisory agreement(s). In providing these
services, the Adviser will provide investment research and supervision of the
Fund's evaluation and, if appropriate, sale and reinvestment of the Fund's
assets. In addition, the Adviser will furnish the Fund with whatever statistical
information the Fund may reasonably request with respect to the securities that
the Fund may hold or contemplate purchasing.
3. Co-Advisor to the Fund. Subject to the approval of the Board and where
required, the Fund's shareholders, the Fund will engage an investment
co-adviser, Stewart Investment Advisers, a Barbados international business
company and registered investment adviser under the Investment Advisers Act of
1940, in respect of all or a portion of the Fund's assets (the "Co-Adviser").
The Adviser and the Co-Adviser will be jointly responsible for providing the
services described in subparagraphs (b), (c), (d), (e), (f) and (g) in Paragraph
2 above and Paragraphs 5 and 6 below (Information Provided to Fund) with respect
to the Fund's assets, although the Adviser will have primary responsibility for
all record-keeping and day-to-day business activities relating to the investment
operations of the Fund. In the event that the Co-Adviser's engagement is
terminated, the Adviser shall be responsible for furnishing the Fund with the
services theretofore performed by such Co-Adviser under the applicable
investment advisory agreement or arranging for a successor co-adviser or
sub-adviser, as the case may be, to provide such services under terms and
conditions acceptable to the Fund and the Board and subject to the requirements
of the 1940 Act.
4. Engagement of Sub-Advisers to the Fund. Subject to the approval of the
Board and where required, the Fund's shareholders, the Adviser may engage an
investment sub-adviser or sub-advisers to provide advisory services in respect
of all or a portion of the Fund's assets (the "Sub-Advised Portion") and may
delegate to such investment sub-adviser(s) all or a portion of the
responsibilities described in subparagraphs (b), (c), (d), (e), (f) and (g) in
Paragraph 2 above and Paragraph 6 below (Information Provided to Fund) with
respect to the Sub-Advised Portion. In the event that an investment
sub-adviser's engagement has been terminated, the Adviser shall be responsible
for furnishing the Fund with the services required to be performed by such
investment sub-adviser(s) under the applicable investment sub-advisory
agreements or arranging for a successor co-adviser or sub-adviser, as
37
the case may be, to provide such services under terms and conditions acceptable
to the Fund and the Board and subject to the requirements of the 1940 Act.
5. Brokerage. In executing transactions for the Fund and selecting brokers
or dealers, the Adviser will use its best efforts to seek the best overall terms
available. In assessing the best overall terms available for any Fund
transaction, the Adviser will consider all factors it deems relevant including,
but not limited to, breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker or
dealer and the reasonableness of any commission for the specific transaction and
on a continuing basis. In selecting brokers or dealers to execute any
transaction and in evaluating the best overall terms available, the Adviser may
consider the brokerage and research services (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934) provided to the Fund
and/or other accounts over which the Adviser or any affiliate exercises
investment discretion.
6. Information Provided to the Fund. The Adviser will use its best efforts
to keep the Fund informed of developments materially affecting the Fund, and
will, on its own initiative, furnish the Fund from time to time with whatever
information the Adviser believes is appropriate for this purpose.
7. Standard of Care. The Adviser shall exercise its best judgment in
rendering the services described herein. The Adviser shall not be liable for any
error of judgment or mistake of law or omission or any loss suffered by the Fund
in connection with the matters to which this Agreement relates, provided that
nothing herein shall be deemed to protect or purport to protect the Adviser
against any liability to the Fund to which the Adviser would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement ("Disabling Conduct"). The Fund will
indemnify the Adviser against, and hold it harmless from, any and all losses,
claims, damages, liabilities or expenses (including reasonable counsel fees and
expenses), including any amounts paid in satisfaction of judgments, in
compromise or as fines or penalties, not resulting from Disabling Conduct by the
Adviser. Indemnification shall be made only following (i) a final decision on
the merits by a court or other body before whom the proceeding was brought that
the Adviser was not liable by reason of Disabling Conduct, or (ii) in the
absence of such a decision, a reasonable determination, based upon a review of
the facts, that the Adviser was not liable by reason of Disabling Conduct by (a)
the vote of a majority of the Directors of the Fund who are neither "interested
persons" of the Fund nor parties to the proceeding ("disinterested non-party
Directors"), or (b) independent legal counsel in a written opinion. The Adviser
shall be entitled to advances from the Fund for payment of the reasonable
expenses incurred by it in connection with the matter to which it is seeking
indemnification in the manner and to the fullest extent permissible under the
law. The Adviser shall provide to the Fund a written affirmation of its good
faith belief that the standard of conduct necessary for indemnification by the
Fund has been met and a written undertaking to repay any such advance if it
should ultimately be determined that the standard of conduct has not been met.
In addition, at least one of the following additional conditions shall be met:
(a) the Adviser shall provide a security in form and amount acceptable to the
Fund for its undertaking; (b) the Fund is insured against losses arising by
reason of the advance; or (c) a majority of disinterested non-party Directors,
or independent legal counsel, in a written opinion, shall have determined, based
on a review of facts readily available to the Fund at the time the advance is
proposed to be made, that there is reason to believe that the Adviser will
ultimately be found to be entitled to indemnification.
8. Compensation. In consideration of the services rendered pursuant to this
Agreement, the Fund will pay the Adviser the Advisory Fee (as defined in the Fee
Schedule) such amount to be paid monthly, in the amount set forth in the fee
schedule attached hereto as Exhibit A (the "Fee Schedule"). The Advisory Fee
shall be the aggregate and entirety of all advisory fees to be paid by the Fund
and will be divided between the Adviser and the Co-Adviser as set forth in the
Fee Schedule, which fee split may be adjusted from time to time in the
discretion of the Board so long as the aggregate advisory fee does not exceed
the Advisory Fee. The fee payable to Adviser for any period shorter than a full
calendar month shall be prorated according to the proportion that such payment
bears to the full monthly payment.
9. Expenses. Except as indicated below, the Adviser will bear all expenses
in connection with the performance of its services under this Agreement,
including the fees payable to the Co-Adviser and to any investment sub-adviser
engaged pursuant to Paragraphs 3 or 4 of this Agreement. The Fund will bear
certain other
38
expenses to be incurred in its operation, including organizational expenses,
taxes, interest, brokerage costs and commissions and stock exchange fees; fees
of Directors of the Fund who are not also officers, directors or the employees
of Adviser; Securities and Exchange Commission fees; state Blue Sky
qualification fees; charges of any custodian, any sub-custodians and transfer
and dividend-paying agents; insurance premiums; outside auditing and legal
expenses; costs of maintenance of the Fund's existence; membership fees in trade
associations; stock exchange listing fees and expenses; litigation and other
extraordinary or non-recurring expenses. Additionally, the Fund will bear the
reasonable travel-related expenses (or an appropriate portion thereof) to attend
Board of Directors' meetings for (i) the Fund's executive officers who are also
officers of the Adviser or the Co-Adviser and (ii) the Adviser's, Co-Adviser's
or a sub-adviser's portfolio manager(s) who are primarily responsible for
managing the Fund's portfolio.
10. Services to other Companies or Accounts. The Fund understands that the
Adviser now acts, or may act in the future as an investment adviser to fiduciary
and other managed accounts or other trusts, or as investment adviser to one or
more other registered or unregistered investment companies, and the Fund has no
objection to the Adviser so acting. The Fund understands that the persons
employed by Adviser to assist in the performance of the Adviser's duties
hereunder will not devote their full time to such service and nothing contained
herein shall be deemed to limit or restrict the right of the Adviser or any
affiliate of the Adviser to engage in and devote time and attention to other
businesses or to render services of whatever kind or nature.
11. Term of Agreement. This Agreement shall become effective as of the date
it is approved by a vote of a "majority" (as defined in the 1940 Act) of the
Fund's outstanding voting securities (the "Effective Date") and shall continue
for an initial two-year term and shall remain in effect from year to year so
long as such continuance is specifically approved by (a) a majority of the
Directors who are not "interested persons" of the Fund (as defined in the 1940
Act) and a majority of the full Board or (b) a majority of the outstanding
voting securities of the Fund (as defined in the 1940 Act). This Agreement is
terminable by a party hereto on sixty (60) days' written notice to the other
party. Any termination shall be without penalty and any notice of termination
shall be deemed given when received by the addressee.
12. No Assignment. This Agreement may not be transferred, assigned, sold or
in any manner hypothecated or pledged by any party hereto and will terminate
automatically in the event of its assignment (as defined in the 1940 Act). It
may be amended by mutual agreement, in writing, by the parties hereto.
13. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto.
14. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Colorado.
15. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original for all purposes, and together shall
constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
ADVISER: FUND:
BOULDER INVESTMENT ADVISERS LLC, [USLIFE INCOME/BOULDER GROWTH & INCOME]
a Colorado limited liability company FUND, INC., a Maryland corporation
By: By:
------------------------------ ------------------------------
Carl D. Johns Stephen C. Miller
Its: President Its: President
39
FEE SCHEDULE
Adviser shall be paid after the end of each calendar month, a fee for the
previous month computed at the annual rate of 1.25% of the value of the Fund's
average monthly net assets (the "Advisory Fee"). For purposes of calculating the
Advisory Fee, the Fund's average monthly net assets will be deemed to be the
average monthly value of the Fund's total assets minus the sum of the Fund's
liabilities (which liabilities do not include leverage borrowings such as bank
or institutional borrowings, preferred stock, bonds, debentures, etc.) and
accrued dividends.
Notwithstanding the foregoing, until such time as more than 50% of the
value of the Fund's assets are invested in common stocks, the Advisory Fee shall
be computed as follows: (i) 0.04167% of the net asset value of the Fund less net
investment income for such month as of the close of business on the last
business day of the month (0.50% on an annual basis); plus (ii) 2.5% of the sum
of (a) the Fund's dividend and interest income; less (b) interest on borrowed
funds during such month.
The Advisory Fee is the maximum aggregate fee that is to be paid to the
Adviser and any co-Adviser or sub-adviser under this and any other co-advisory
or sub-advisory agreements.
Fee Split Between Adviser and Co-Adviser
The Advisory Fee shall initially be split among the Adviser and Co-Adviser
25% to Boulder Investment Advisers LLC and 75% to Stewart Investment Advisers.
1
PROXY
USLIFE INCOME FUND, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned holder of shares of Common Stock of USLIFE 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 Special Meeting of Shareholders
of the Fund to be held at the Doubletree La Posada Resort, 4949 E. Lincoln Dr.,
Scottsdale, Arizona at 9:00 a.m. Mountain Standard Time, on April 26, 2002, and
any adjournments thereof. The undersigned hereby acknowledges receipt of the
Notice of Special 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 Special 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
2
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 EACH OF PROPOSAL NOS. 1 THROUGH 9. The Board of Directors recommends that
the shareholders vote "FOR" approval of each of Proposals Nos. 1 through 9.
Please refer to the Proxy Statement for a discussion of the Proposals.
1. To approve or disapprove the proposed Investment Advisory Agreement with
Boulder Investment Advisers, L.L.C.
FOR ____ AGAINST ____ ABSTAIN ____
2. To approve or disapprove the proposed Investment Advisory Agreement with
Stewart Investment Advisers.
FOR ____ AGAINST ____ ABSTAIN ____
3. To approve or disapprove a change of the Fund's investment objective to
total return.
FOR ____ AGAINST ____ ABSTAIN ____
4. To approve or disapprove changing the Fund's classification and related
fundamental investment restriction to make the Fund a non-diversified
investment company.
FOR ____ AGAINST ____ ABSTAIN ____
5. To approve or disapprove an amendment to the Fund's fundamental investment
restriction regarding borrowing.
FOR ____ AGAINST ____ ABSTAIN ____
6. To approve or disapprove an amendment to the Fund's fundamental investment
restriction regarding the pledging of assets.
FOR ____ AGAINST ____ ABSTAIN ____
7. To approve or disapprove an amendment to the Fund's fundamental investment
restriction regarding the issuance of senior securities.
FOR ____ AGAINST ____ ABSTAIN ____
3
8. To approve or disapprove an amendment to the Fund's fundamental investment
restriction regarding investment in real estate, real estate investment
trusts ("REITs") and other real estate securities.
FOR ____ AGAINST ____ ABSTAIN ____
9. To approve or disapprove the deletion of the Fund's fundamental investment
restriction regarding the ability to hold greater than 5% in one issuer.
FOR ____ AGAINST ____ ABSTAIN ____
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:
-----------------------------------
Date:
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Signature:
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Date:
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4