SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the
[X] Definitive Proxy Statement Commission Only (as permitted by
[ ] Definitive Additional Materials Rule 14a-6(e)(2))
[ ] Soliciting Material Under Rule 14a-12
Blue Chip Value Fund, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the 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 transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials:
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[ ] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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BLUE CHIP VALUE FUND, INC.
1225 Seventeenth Street
26th Floor
Denver, Colorado 80202
Denver, Colorado
April 3, 2003
To Our Stockholders:
It is our pleasure to invite you to your Fund's Annual Meeting of
Stockholders to be held at the offices of Denver Investment Advisors LLC
("DIA"), 1225 Seventeenth Street, 26th Floor, Denver, Colorado, on Tuesday, May
20, 2003, at 12:00 noon (Mountain time). Formal notice of the meeting appears on
the next page and is followed by the Proxy Statement.
In addition to the election of two directors, we are submitting for your
consideration three proposals which are intended to increase the Fund's
flexibility and options in any future considerations of implementing a
leveraging strategy. The Fund's current investment policies permit it to issue
senior securities, such as preferred stock and debt. However, the Fund's
Articles of Incorporation do not expressly authorize the issuance of preferred
stock and a current investment limitation precludes it from entering into
borrowings secured by the Fund's assets. In addition, under the Fund's current
investment advisory agreement, any assets purchased with proceeds raised from
borrowing money or issuing debt would be excluded from the investment advisory
fee calculation, whereas assets purchased with proceeds raised from issuing
preferred stock would be included. This inconsistent treatment of how the
investment adviser is compensated when the Fund is leveraged using borrowings or
debt versus preferred stock makes a debt strategy potentially less desirable
than a preferred stock strategy. The Board believes that the three proposals if
approved will provide greater flexibility for the Fund to take advantage of
opportunities and possible future circumstances in which the implementation of a
leveraging strategy might be desirable.
If approved, Proposal 2 will empower the Board to issue additional classes
of stock, including preferred stock by the Fund, Proposal 3 will eliminate the
Fund's fundamental investment limitation which prohibits the Fund from
purchasing securities on margin and Proposal 4 will increase the advisory fee
payable to DIA by authorizing it to be compensated based upon the incremental
assets related to debt leverage. Although not required, DIA has informed the
Board that it intends to voluntarily waive its advisory fee on the incremental
assets related to debt or preferred stock unless the Fund out-performs the
interest rate or dividend rate of such strategies, in accordance with a
calculation to be approved by the Board. The exact terms of this fee
calculation, however, have not yet been finalized.
Leverage is commonly utilized by closed-end funds as a way of increasing
assets available for investment and creating an opportunity for greater returns
per share; however, it is a speculative technique that increases a fund's
exposure to capital risk. Therefore, please read the enclosed Proxy Statement
carefully before you decide how to vote your shares.
We hope you will find it convenient to attend, but we urge you, in any
event, to complete and return the enclosed proxy card in the envelope provided.
You may also choose to cast your vote by telephone or via the Internet, instead
of by mail. If you do attend, you may vote in person if you so desire. If you
have any questions about the proposals, you may contact the Fund's proxy
solicitor, Morrow & Co, Inc. at 1-800-607-0088 or the Fund directly at
1-800-624-4190.
The Annual Report of the Blue Chip Value Fund, Inc. for the year ended
December 31, 2002 has previously been mailed to stockholders of record. It is
enclosed with this mailing to beneficial owners of the Fund's stock who may not
have previously received it. The Annual Report is not to be considered proxy
soliciting material.
Sincerely,
/s/ Todger Anderson
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Todger Anderson, CFA
PRESIDENT
YOUR VOTE IS IMPORTANT
WE CONSIDER THE VOTE OF EACH STOCKHOLDER IMPORTANT, WHATEVER THE NUMBER OF
SHARES HELD. IF YOU ARE UNABLE TO ATTEND THE MEETING IN PERSON, PLEASE SIGN,
DATE, AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE OR YOU MAY CAST YOUR VOTE
BY TELEPHONE OR VIA THE INTERNET AT YOUR EARLIEST CONVENIENCE. THE PROMPT VOTING
OF YOUR PROXY WILL SAVE EXPENSE TO YOUR FUND.
BLUE CHIP VALUE FUND, INC.
1225 Seventeenth Street
26th Floor
Denver, Colorado 80202
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Denver, Colorado
April 3, 2003
To the Stockholders of
Blue Chip Value Fund, Inc.:
The Annual Meeting of Stockholders of Blue Chip Value Fund, Inc. (the
"Fund") will be held at the offices of Denver Investment Advisors LLC, 1225
Seventeenth Street, 26th Floor, Denver, Colorado, on Tuesday, May 20, 2003, at
12:00 noon (Mountain time), for the following purposes:
1. To elect two (2) Class III directors to serve until the Annual Meeting
of Stockholders in the year 2006 and until the election and
qualification of their successors.
2. To approve an amendment to the Fund's Articles of Incorporation to
permit the Fund to issue additional classes of stock, including
preferred stock.
3. To approve the elimination of the Fund's fundamental policy that
restricts its ability to purchase securities on margin.
4. To approve an amendment to the Fund's investment advisory agreement
between the Fund and Denver Investment Advisors LLC to increase the
advisory fee payable to Denver Investment Advisors LLC by authorizing
it to be compensated on the assets of the Fund related to debt.
5. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The subjects referred to above are discussed in the Proxy Statement
attached to this Notice. Each Stockholder is invited to attend the Annual
Meeting in person. Holders of record at the close of business on March 14, 2003
are entitled to receive notice of and to vote at the Meeting. IF YOU CANNOT BE
PRESENT AT THE ANNUAL MEETING, WE URGE YOU TO FILL IN, SIGN, AND PROMPTLY RETURN
THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED, WHICH IS ADDRESSED FOR YOUR
CONVENIENCE AND NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES. YOU MAY ALSO
CHOOSE TO CAST YOUR VOTE BY TELEPHONE OR VIA THE INTERNET, INSTEAD OF BY MAIL.
IN ORDER TO AVOID THE ADDITIONAL EXPENSE TO THE FUND OF FURTHER SOLICITATION, WE
ASK YOUR COOPERATION IN COMPLETING YOUR PROXY PROMPTLY.
/s/ W. Bruce McConnel
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W. Bruce McConnel
Secretary
ANNUAL MEETING OF STOCKHOLDERS
OF
BLUE CHIP VALUE FUND, INC.
1225 SEVENTEENTH STREET
26TH FLOOR
DENVER, COLORADO 80202
PROXY STATEMENT
April 3, 2003
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Blue Chip Value Fund, Inc. (the "Fund") for
use at the Fund's Annual Meeting of Stockholders to be held at the offices of
Denver Investment Advisors LLC, 1225 Seventeenth Street, 26th Floor, Denver,
Colorado, on Tuesday, May 20, 2003, at 12:00 noon (Mountain time), and at any
adjournment thereof (the "Meeting").
You can vote in any one of the following ways:
(a) By mail, by filling out and returning the enclosed proxy card.
(b) By telephone or Internet by following the instructions printed on the
proxy card.
(c) In person at the Meeting.
Any person giving a proxy may revoke it at any time prior to its use.
Properly submitted proxies received by the Fund in time for voting and not so
revoked will be voted in accordance with the directions specified therein. The
Board of Directors recommends a vote FOR the election of directors as listed,
FOR the amendment to the Articles of Incorporation, FOR the elimination of the
Fund's fundamental policy that restricts its ability to purchase securities on
margin, and FOR the amendment to the investment advisory agreement. If no
specification is made, the proxy will be voted for the election of directors as
listed, for the amendment to the Articles of Incorporation, for the elimination
of the Fund's fundamental policy that restricts its ability to purchase
securities on margin, for the amendment to the investment advisory agreement and
with discretionary authority to vote upon such other business as may properly
come before the Meeting or any adjournment thereof.
Costs of soliciting proxies will be borne by the Fund. Morrow & Co., Inc.
has been retained to solicit proxies in connection with the Meeting for a fee of
approximately $7,500 and reimbursement for all out-of pocket expenses. It is
anticipated that banks, brokerage houses, and other custodians will be requested
on behalf of the Fund to forward solicitation material to their principals to
obtain authorizations for the execution of proxies. In addition to soliciting
proxies by use of the mail, some of the officers of the Fund and persons
affiliated with Denver Investment Advisors LLC, the Fund's investment adviser,
may, without remuneration, solicit proxies personally or by telephone or
telefax. By voting as soon as you receive your proxy materials, you will help to
reduce the cost of any additional mailings or solicitation efforts.
On March 14, 2003, the record date for determining the Stockholders
entitled to vote at the Meeting, there were outstanding 26,607,787 shares of
common stock, constituting all of the Fund's outstanding voting securities. Each
share of common stock is entitled to one vote. This Proxy Statement, the
accompanying Notice of Annual Meeting of Stockholders and the enclosed proxy are
being mailed on or about April 3, 2003 to Stockholders of record on the record
date.
THE FUND PREPARES AND MAILS TO ITS STOCKHOLDERS FINANCIAL REPORTS ON A
SEMI-ANNUAL BASIS. THE FUND WILL FURNISH TO STOCKHOLDERS UPON REQUEST, WITHOUT
CHARGE, COPIES OF ITS ANNUAL REPORT TO STOCKHOLDERS, CONTAINING AUDITED
FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002. REQUESTS FOR
SUCH ANNUAL REPORT SHOULD BE DIRECTED TO MR. JASPER R. FRONTZ, TREASURER, BLUE
CHIP VALUE FUND, INC., 1225 SEVENTEENTH STREET, 26TH FLOOR, DENVER, COLORADO
80202 OR TELEPHONE TOLL-FREE (800) 624-4190. THE ANNUAL REPORT IS NOT TO BE
REGARDED AS PROXY SOLICITING MATERIAL.
PROPOSAL 1: NOMINEES FOR ELECTION AS DIRECTORS
The Fund's By-Laws provide that the Board of Directors shall consist of
three classes of members. Directors are chosen for a term of three years and the
term of one class of directors expires each year. The Board of Directors has
designated two candidates, who are presently directors of the Fund, for whom
proxies solicited by the Fund will be voted if requisite authority is granted.
The following table sets forth the nominees for election as directors and
the other directors, their ages, term of office, including length of time served
as a director, principal occupations for the past five or more years, any other
directorships they hold in companies which are subject to the reporting
requirements of the Securities Exchange Act of 1934 or are registered as
investment companies under the Investment Company Act of 1940, as amended (the
"1940 Act"), and the number of portfolios in the Fund Complex that they oversee.
The Fund Complex includes funds with a common or affiliated investment adviser.
The Fund Complex is comprised of the Fund, consisting of one portfolio and
Westcore Trust, of which there are eleven portfolios. Each director may be
contacted by writing to the director, c/o Blue Chip Value Fund, Inc., 1225
Seventeenth Street, 26th Floor, Denver, Colorado 80202, Attn: Jasper Frontz.
-2-
NOMINEES FOR ELECTION - TO BE ELECTED FOR A TERM OF THREE YEARS UNTIL THE ANNUAL
MEETING IN THE YEAR 2006.
INTERESTED DIRECTOR
KENNETH V. PENLAND, CFA*
AGE: 60
POSITION(S) HELD WITH THE FUND AND TERM OF OFFICE: Chairman of the Board and
Class III Director since 1987.
PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS: Retired; Chairman and Executive
Manager, Denver Investment Advisors LLC (from 1995 until December 2001); prior
thereto Chairman of the Board and Director of Research, Denver Investment
Advisors, Inc.; President, Westcore Trust (from 1995 until August 2002);
Trustee, Westcore Trust (since 2001).
OTHER DIRECTORSHIPS HELD: None.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN: Twelve.
INDEPENDENT DIRECTOR
ROBERTA M. WILSON, CFA
AGE: 59
POSITION(S) HELD WITH THE FUND AND TERM OF OFFICE: Class III Director since
1987.
PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS: Retired; Director of Finance,
Denver Board of Water Commissioners, Denver, Colorado (from 1985 until July
1998); Management Consultant and Coach (since 1998).
OTHER DIRECTORSHIPS HELD: None.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN: One.
OTHER DIRECTORS
INTERESTED DIRECTOR
TODGER ANDERSON, CFA**
AGE: 58
POSITION(S) HELD WITH THE FUND AND TERM OF OFFICE: Class I Director from 1988
until 1995, and since 1998.*** Term as Director expires in 2004. President of
the Fund since 1987.
PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS: President and Executive Manager,
Denver Investment Advisors LLC (since 1995); prior thereto, President and
Director of Portfolio Management, Denver Investment Advisors, Inc.; Portfolio
Manager, Westcore MIDCO Growth Fund (since 1986); Portfolio Co-Manager, Westcore
Select Fund (since 2001).
OTHER DIRECTORSHIPS HELD: None.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN: One.
-3-
INDEPENDENT DIRECTORS
ROBERT J. GREENEBAUM
AGE: 85
POSITION(S) HELD WITH THE FUND AND TERM OF OFFICE: Class I Director since 1988.
Term expires in 2004.
PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS: Independent Consultant; Director,
United Asset Management Corp., Boston, Massachusetts (February 1982 until May
2000). Consultant, Denver Investment Advisors LLC until December 2001.
OTHER DIRECTORSHIPS HELD: None.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN: One.
LEE W. MATHER, JR.
AGE: 59
POSITION(S) HELD WITH THE FUND AND TERM OF OFFICE: Class II Director since 2001.
Term expires in 2005.
PRINCIPAL OCCUPATIONS DURING THE PAST FIVE YEARS: Director, American Rivers
(conservation organization), Washington, D.C. (since June 2000); Investment
Banker, Merrill Lynch & Co., New York, New York (January 1977 until April 2000).
OTHER DIRECTORSHIPS HELD: None.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN: One.
GARY P. MCDANIEL
AGE: 57
POSITION(S) HELD WITH THE FUND AND TERM OF OFFICE: Class I Director since 2001.
Term expires in 2004.
PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS: Chief Executive Officer, Chateau
Communities, Inc. (REIT/manufactured housing) (1997-2002); prior thereto, Chief
Executive Officer ROC Communities, Inc. (REIT/manufactured housing) (1980 -
1997).
OTHER DIRECTORSHIPS HELD: None.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN: One.
RICHARD C. SCHULTE
AGE: 58
POSITION(S) HELD WITH THE FUND AND TERM OF OFFICE: Class II Director since 1987.
Term expires in 2005.
PRINCIPAL OCCUPATIONS DURING THE PAST FIVE YEARS: Private Investor; President,
Transportation Service Systems, Inc. (1993 - 1996); Employee, Southern Pacific
Lines, Denver, Colorado (until 1996); Employee, Rio Grande Industries, Denver,
Colorado (holding company) (1991 - 1993); Vice President Finance and Treasurer,
Rio Grande Holdings, Inc., Denver, Colorado (1990 -1993); and Vice President,
Denver & Rio Grande Western Railroad Company, Denver, Colorado (1990 - 1993).
Mr. Schulte's daughter was employed as a summer intern at the Fund's investment
adviser, Denver Investment Advisors LLC, from May to July of 1998.
OTHER DIRECTORSHIPS HELD: None.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN: One.
-4-
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* Mr. Penland may be deemed to be an "interested person" of the Fund, as that
term is defined in the 1940 Act, by virtue of his affiliation with the Fund's
investment adviser and his status as an officer of the Fund.
** Mr. Anderson may be deemed to be an "interested person" of the Fund, as that
term is defined in the 1940 Act, by virtue of his affiliation with the Fund's
investment adviser and his status as an officer of the Fund.
*** Mr. Anderson previously served as a director of the Fund from May 12, 1988
to March 31, 1995. Mr. Anderson resigned on March 31, 1995 because of a change
in control of the Fund's investment adviser, and in order to comply with the
provisions of Section 15(f) of the 1940 Act that at least 75% of the directors
of the Fund were required to be disinterested directors for a period of three
years following the change in control. Mr. Anderson was re-elected to the Board
of Directors at the 1998 Annual Meeting of Stockholders.
OFFICERS
Information concerning the names, ages, positions with the Fund, term of
office, including length of time served as an officer, current affiliations, and
principal occupations of the principal officers of the Fund, other than Messrs.
Anderson and Penland, is set out below. Information concerning Messrs. Anderson
and Penland is set forth on pages 2-3.
Officers of the Fund are elected by the Board of Directors and, subject to
the earlier termination of office, each officer holds office for the term of one
year and until his or her successor is elected and qualified.
MARK M. ADELMANN, CFA, CPA
1225 Seventeenth Street, 26th Floor, Denver, Colorado 80202
AGE: 45.
POSITION HELD WITH THE FUND AND TERM OF OFFICE: Vice President of the Fund since
2002.
PRINCIPAL OCCUPATIONS DURING THE PAST FIVE YEARS: Vice President, Denver
Investment Advisors LLC (since 2000); Research Analyst, Denver Investment
Advisors LLC (since 1995).
W. BRUCE MCCONNEL
1 Logan Square, 18th and Cherry Streets, Philadelphia, Pennsylvania 19103
AGE: 59.
POSITION HELD WITH THE FUND AND TERM OF OFFICE: Secretary of the Fund since
1987.
PRINCIPAL OCCUPATIONS DURING THE PAST FIVE YEARS: Partner of the law firm of
Drinker Biddle & Reath LLP, Philadelphia, Pennsylvania; Secretary, Westcore
Trust (since 1985).
-5-
JASPER R. FRONTZ, CPA
1225 Seventeenth Street, 26th Floor, Denver, Colorado 80202
AGE: 34.
POSITION HELD WITH THE FUND AND TERM OF OFFICE: Treasurer of the Fund since
1997.
PRINCIPAL OCCUPATIONS DURING THE PAST FIVE YEARS: Vice President, Denver
Investment Advisors LLC (since 2000); Director of Mutual Fund Administration,
Denver Investment Advisors LLC (since 1997); prior thereto, Fund Controller,
ALPS Mutual Funds Services, Inc. (1995-1997); Treasurer, Westcore Trust (since
1997); Registered Representative, ALPS Distributors, Inc. (since 1995).
No director or officer of the Fund who is currently a director, officer, or
employee of the investment adviser or any of its parents, received any
remuneration from the Fund during 2002. The other directors taken as a group
were either paid or had accrued directors' fees for 2002 from the Fund in the
aggregate amount of $74,694.
In 2002 the directors received an annual retainer of $6,000 for serving as
directors, plus a meeting fee of $1,500 for each regular Board meeting attended.
Effective May 8, 2001, the directors' compensation was clarified to include
reimbursement for out-of-pocket expenses incurred in attending Board meetings.
The Board of Directors held four regularly scheduled meetings during the year
ended December 31, 2002. Each of the directors attended every Board meeting.
The following table provides information concerning the compensation of
each of the Fund's directors for services rendered during the Fund's fiscal year
ended December 31, 2002:
COMPENSATION TABLE
TOTAL
PENSION OR COMPENSATION
AGGREGATE RETIREMENT BENEFITS ESTIMATED FROM FUND AND
COMPENSATION ACCRUED AS PART OF ANNUAL BENEFITS FUND COMPLEX
NAME OF PERSON FROM FUND FUND EXPENSES UPON RETIREMENT PAID TO DIRECTORS
-------------- --------- ------------- --------------- -----------------
INTERESTED DIRECTORS
Todger Anderson $ -0- $ -0- $ -0- $ -0-
Kenneth V. Penland $12,000 $ -0- $ -0- $29,500(1)
INDEPENDENT DIRECTORS
Robert J. Greenebaum $12,000 $ -0- $ -0- $12,000
Lee W. Mather, Jr. $14,694 $ -0- $ -0- $14,694
Gary P. McDaniel $12,000 $ -0- $ -0- $12,000
Richard C. Schulte $12,000 $ -0- $ -0- $12,000
Roberta M. Wilson $12,000 $ -0- $ -0- $12,000
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(1) Includes $17,500 Mr. Penland received as a Trustee of Westcore Trust in
2002.
-6-
Drinker Biddle & Reath LLP, of which W. Bruce McConnel, Secretary of the
Fund, is a partner, received legal fees during the fiscal year ended December
31, 2002 for services rendered as the Fund's legal counsel.
OWNERSHIP OF FUND SHARES
The following table sets forth, as of January 31, 2003, beneficial
ownership of the Fund's shares by (1) each director and each nominee for
director and (2) all directors, nominees for director and executive officers as
a group.
DOLLAR RANGE
OF EQUITY NUMBER OF SHARES PERCENT
SECURITIES OWNED BENEFICIALLY OWNED(1) OF CLASS
NAME IN THE FUND IN THE FUND IN THE FUND
---- ----------- ----------- -----------
INTERESTED DIRECTORS
Todger Anderson over $100,000 180,352 *
Kenneth V. Penland over $100,000 297,150(2) 1.1%
INDEPENDENT DIRECTORS
Robert J. Greenebaum $50,001 - $100,000 21,482 *
Lee W. Mather, Jr. over $100,000 33,000 *
Gary P. McDaniel $10,001 - $50,000 2,294 *
Richard C. Schulte $10,001 - $50,000 3,717(3) *
Roberta M. Wilson $10,001 - $50,000 4,387(4) *
All directors and
executive officers and nominees
for director as a group 542,382 2.0%
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(1) Unless otherwise indicated the beneficial owner has sole voting and
investment power.
(2) Including 85,512 shares held by Mr. Penland, 116,902 shares owned by Mr.
Penland's wife, 31,465 shares jointly owned by Mr. Penland and his wife,
and 63,271 shares owned in a trust for Mr. Penland's daughter.
(3) These shares include 2,524 that are owned by Mr. Schulte's wife.
(4) These shares are owned jointly by Ms. Wilson and her husband.
* Less than 1%.
To the knowledge of the Fund's management, no person owns beneficially more
than 5% of the Fund's outstanding shares as of March 14, 2003.
-7-
STANDING BOARD COMMITTEES
The Board has established two standing committees in connection with the
governance of the Fund: Audit and Nominating.
The Fund's Audit Committee is comprised of all of the independent
directors. The members of the Audit Committee are also considered independent as
defined in the New York Stock Exchange Listing Standards. The members of the
Audit Committee are Messrs. Greenebaum, Mather, McDaniel and Schulte, and Ms.
Wilson. The functions of the Audit Committee are to meet with the Fund's
independent auditors to review the scope and findings of the annual audit,
review matters of independence, discuss the Fund's accounting policies, discuss
any recommendation of the independent auditors with respect to the Fund's
management practices, review the impact of changes in accounting standards upon
the Fund's financial statements, recommend to the Board of Directors the
selection of independent auditors, and perform such other duties as may be
assigned to the Audit Committee by the Board of Directors. The Audit Committee
met once during the fiscal year ended December 31, 2002.
The Audit Committee has met with Fund management to review and discuss,
among other things, the Fund's audited financial statements for the year ended
December 31, 2002. The Audit Committee has also met with the Fund's independent
accountants and discussed with them certain matters required under SAS 61
(Codification of Statements on Auditing Standards, AU ss. 380) as may be
modified or supplemented from time to time, including, but not limited to, the
scope of the Fund's audit, the Fund's financial statements and the Fund's
accounting controls. The Audit Committee has received written disclosures and
the letter from the Fund's independent accountants required by Independence
Standards Board Standard No. 1 (Independence Discussions with Audit Committees),
as may be modified or supplemented from time to time, and has discussed with the
independent accountants their independence. Based upon these reviews and
discussions, the Audit Committee recommended to the Board of Directors that the
Fund's audited financial statements be included in the Fund's 2002 Annual Report
to Stockholders for the year ended December 31, 2002. The Audit Committee
adopted a written charter in February 2000.
The Fund's Nominating Committee is comprised of all independent directors.
The members of the Nominating Committee are: Messrs. Greenebaum, Mather,
McDaniel and Schulte, and Ms. Wilson. The Nominating Committee is responsible
for the selection and nomination of candidates to serve as directors. Although
the Nominating Committee expects to be able to find an adequate number of
candidates to serve as directors, the Nominating Committee is willing to
consider nominations received from Stockholders at the address on the front of
this Proxy Statement. In order for any other person to be nominated for election
to the Board of Directors at this Meeting, the By-Laws require the proposed
nominee to notify the Fund in writing by the tenth day following the day on
which notice of the Meeting is mailed and to provide such written information to
the Fund as its Secretary may reasonably require. This Proxy Statement is
expected to be mailed on April 3, 2003, and, if such occurs, any such notice
must be received by the Fund on or before April 13, 2003. The Nominating
Committee did not meet during the fiscal year ended December 31, 2002.
-8-
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 30(f) of the 1940 Act and Section 16(a) of the Securities Exchange
Act of 1934 require the Fund's directors and officers, certain affiliated
persons of the investment adviser, and persons who own more than ten percent of
the Fund's shares to file with the Securities and Exchange Commission and the
New York Stock Exchange initial reports of ownership and reports of changes in
ownership of shares of the Fund. Specific due dates for these reports have been
established and the Fund is required to disclose in this Proxy Statement any
failure to file by the specific due dates. To the Fund's knowledge, all of these
filing requirements were satisfied during 2002, except as follows: Mr. John N.
Roberts, an affiliated person of the investment adviser, did not file on a
timely basis one report relating to one transaction; and Mr. Mark M. Adelmann,
an officer of the Fund, did not file on a timely basis one report relating to
his initial statement of beneficial ownership upon becoming an officer of the
Fund. In making these disclosures, the Fund has relied on copies of reports that
were furnished to it and written representations of its directors, officers and
investment adviser.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Pursuant to Rule 32a-4 of the 1940 Act, the Fund is no longer required to
submit the ratification of the selection of its accountants to Stockholders.
Upon the recommendation of the Audit Committee, the Board on February 11, 2003,
re-appointed Deloitte & Touche LLP ("Deloitte & Touche") as the Fund's
independent auditors for the fiscal year ending December 31, 2003. Deloitte &
Touche served as the Fund's independent auditors for the fiscal years ended
December 31, 2000, 2001 and 2002.
INDEPENDENT AUDITOR'S FEES
AUDIT FEES: For the Fund's fiscal year ended December 31, 2002 the
aggregate fees paid by the Fund to Deloitte & Touche for the annual audit of the
Fund's financial statements were $16,430.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES: Deloitte &
Touche did not bill any fees for professional services rendered to the Fund,
Denver Investment Advisors LLC, the Fund's investment adviser ("DIA"), or
companies controlling, controlled by or under common control with DIA that
provided services to the Fund during the most recent fiscal year for information
technology and services related to financial information systems design and
implementation.
ALL OTHER FEES: For the same period, aggregate fees of $11,820 were paid by
the Fund to Deloitte & Touche for other services, including tax return
preparation for the Fund and a reading of the Fund's semi-annual financial
statements. In addition, DIA intends to engage Deloitte & Touche in 2003 for an
examination of portfolio composites managed by DIA (for compliance with
standards established by the Association for Investment Management and Research
("AIMR") for the year ended December 31, 2002.
-9-
The Audit Committee has considered the level of non-audit services provided
by the auditors to the Fund and DIA in its deliberations of auditor
independence.
Representatives of Deloitte & Touche are not expected to be present at the
Meeting, but will be available by telephone to respond to appropriate questions
from Stockholders, if necessary.
The Board of Directors recommends that Stockholders vote FOR the election
of Mr. Penland and Ms. Wilson as Class III directors to serve until the Annual
Meeting of Stockholders in the year 2006 and until the election and
qualification of their successors.
PROPOSAL 2: AMENDMENT TO THE FUND'S ARTICLES OF INCORPORATION
TO PERMIT THE FUND TO ISSUE ADDITIONAL CLASSES OF STOCK,
INCLUDING PREFERRED STOCK
At a meeting held on February 11, 2003, the Board of Directors unanimously
approved and recommended the submission to Stockholders of an amendment to the
Fund's Articles of Incorporation that would permit the Fund to issue multiple
classes or series of shares, including preferred shares (the "preferred stock"),
with rights as determined by the Board of Directors, by action of the Board of
Directors without further stockholder approval. The text of the proposed
amendment to the Articles of Incorporation is included as Exhibit A to this
Proxy Statement.
Under the 1940 Act, an investment company like the Fund is permitted to
issue senior securities such as preferred stock up to approximately 50% of the
value of its total assets. However, the Fund's current investment policies
permit it to issue senior securities, such as preferred stock, in an amount not
exceeding 15% of the value of its total assets. Although there is no present
intention to do so, this policy can be changed by the Board of Directors without
Stockholder approval.
The proposed amendment is designed to permit the Fund to issue additional
classes or series of shares, including preferred stock, without further
Stockholder approval. In approving this amendment, the Board determined that
such broad authorization of additional classes or series of shares will provide
flexibility to take advantage of opportunities and possible future circumstances
in which the issuance of preferred stock might be desirable. Requiring the
Stockholders to meet and approve each separate issuance of such shares would be
time-consuming and costly, particularly in those instances where the number of
shares to be issued may be small in relation to the total capital of the Fund.
Moreover, if Stockholder approval of such securities were postponed until a
specific need arose, the delay could, in some instances, deprive the Fund of
opportunities otherwise available.
DIA would benefit from the issuance of preferred stock because the net
proceeds to the Fund of the preferred stock offering will increase the net
assets of the Fund, and, therefore, will increase the dollar amount of the
investment advisory fee and co-administration fee payable by the Fund (which is
ultimately an expense of the Fund's common stockholders) to DIA since both fees
-10-
are calculated as a percentage of the Fund's net assets. However, the investment
advisory and co-administration fees as a percentage of the Fund's assets would
not increase as a result of the issuance of any preferred stock. Although not
required, DIA has informed the Board that if a preferred offering is initiated,
it intends to voluntarily waive its advisory fee on the incremental assets
raised unless the Fund out-performs the dividend rate of the preferred stock, in
accordance with a calculation to be approved by the Board. The exact terms of
this fee calculation, however, have not yet been finalized.
DESCRIPTION OF PROPOSED PREFERRED STOCK. The Board of Directors has no immediate
plans to authorize the Fund to issue preferred stock. If this proposal is
approved, the Board of Directors intends to consider more fully the issuance of
preferred stock, and would establish at or prior to the time of issuance the
issue price or prices, voting rights, dividend rate or rates, redemption rights
and price, liquidation preference, conversion rights and such other terms and
conditions of the preferred stock as the Board of Directors deems appropriate,
without further action on the part of the common stockholders. The Fund's
Stockholders would have no preemptive right to purchase or otherwise acquire any
preferred stock that might be issued. Preferred stock will be issued only if the
Board determines in light of all relevant circumstances known to the Board that
to do so would be in the best interests of the Fund and its stockholders.
Under the 1940 Act, the Fund would not be permitted to issue preferred
stock unless immediately after such issuance the value of the Fund's total
assets, less all liabilities and indebtedness not represented by senior
securities, would be at least 200% of (i) the aggregate amount of all debt
securities, plus (ii) the aggregate involuntary liquidation preference of any
shares (such as the preferred stock) having priority as to distribution of
assets or payment of dividends over any other shares (such as the Fund's common
stock) (the "asset coverage test").
RISKS OF ISSUANCE OF PREFERRED STOCK. The issuance of preferred stock creates
risks for holders of the common stock that are not associated with unleveraged
funds having similar investment objectives and policies.
VOLATILITY. If the Fund were to issue preferred stock, there is a
likelihood of greater volatility of net asset value and market price of the
Fund's common stock. If the Fund were to issue preferred stock and thereby incur
an obligation to pay dividends, the total return that the Fund earns on the
proceeds of such issuance which is in excess of the sum of dividends due on the
senior securities and costs and expenses thereof will cause the net asset value
of the Fund's shares (and the return of the Fund) to increase to a greater
extent than would otherwise be the case if leverage had not been used.
Conversely if the total return that the Fund earns on the proceeds of such
issuance fails to cover the sum of dividends due on the issued senior securities
and costs and expenses thereof, the net asset value of the Fund (and the return
of the Fund) would be lower than would otherwise be the case if leverage had not
been used. In addition, there is a risk that fluctuations in the dividend rate
on variable rate preferred stock may adversely affect the return to the holders
of the Fund's common stock. However, if the Fund issues variable rate preferred
stock, DIA may enter into hedging transactions using either interest rate swaps
or caps in order to reduce the impact of changes in the dividend rate.
Successful use of a leveraging strategy may depend on DIA's ability to predict
correctly interest rates and market movements, and there is no assurance that a
leveraging strategy will be successful during any period in which it is
employed.
-11-
IMPACT ON DIVIDENDS. Holders of preferred stock would be entitled to
receive dividends before holders of common stock, and would be entitled to
receive the liquidation value of their shares before any distributions are made
to holders of common stock should the Fund ever be dissolved. The dividend
rights and liquidation value of the preferred stock would be determined at the
time of its issuance, subject to the requirement of the 1940 Act that the
dividends payable on preferred stock be cumulative. The Fund would not be
permitted to pay or declare dividends (except a dividend payable in stock of the
Fund) or other distributions on the common stock, or the purchase of any common
stock by the Fund, unless the asset coverage test described above under
"Description of Proposed Preferred Stock" would be met, after giving effect to
the dividend or distribution. Consequently, the requirement to pay dividends on
preferred stock in full before any dividends may be paid on common stock may
reduce or eliminate the dividend payable on common stock. However, the Fund
expects, that to the extent possible, it would purchase or redeem preferred
stock to maintain compliance with such asset coverage requirements so that this
impact on dividends would be avoided.
VOTING RIGHTS. Common stockholders would realize voting dilution as a
result of the issuance of preferred stock since the preferred stockholders would
vote together with the common stockholders on all general matters. In addition,
under the 1940 Act, the holders of any preferred stock, would have the right to
elect two directors at all times and to elect a majority of the directors if the
Fund failed to pay two years or more of dividends on the preferred stock. This
right to elect a majority of the directors would continue until all dividends in
arrears have been paid or otherwise provided for. In addition, under the 1940
Act, the holders of preferred stock will have the right to vote as a class on
certain matters such as adoption of any plan of reorganization that would
adversely affect the preferred shares (for example, a sale of assets or exchange
of securities), liquidation of the Fund or conversion to an open-end fund, a
change in the classification of the Fund from a diversified investment company
or changing its fundamental investment policies or restrictions. Preferred
stockholders might have interests that differ from common stockholders, and
there can be no assurance that preferred stockholders will vote to approve
transactions approved by the common stockholders. Consequently, the class voting
requirements for preferred stock could make it more difficult for the Fund to
take the foregoing actions that may, in the future, be proposed by the Board
and/or common stockholders since the preferred stockholders could effectively
block such a proposal. Holders of preferred stock shall have such other voting
rights as are required by law or are provided by the Fund's Board of Directors
at the time of issuance of the preferred stock, and holders of a particular
class or series of preferred stock may be entitled to vote as a separate class
or series on certain matters. In addition, mandatory redemption requirements may
make it more difficult or costly for the Fund to take certain actions. Under the
1940 Act, an open-end investment company may not issue any senior security
(other than certain bank borrowings) and, as a result, prior to converting to an
open-end investment company the Fund would likely be required to redeem or
repurchase any senior securities, including the preferred stock, that it had
issued. The Fund's Board of Directors is not currently aware of any efforts,
pending or threatened, to acquire control of the Fund, to force an open-ending,
merger or sale of assets by the Fund or liquidate or dissolve the Fund. The
flexibility to issue preferred shares as well as common shares could enhance the
Board of Director's ability to negotiate on behalf of the Stockholders in a
takeover but might also render more difficult or discourage a merger, tender
-12-
offer or proxy contest, the assumption of control by the holder of a large block
of the Fund's securities and the removal of incumbent management. The purpose in
presenting the proposed amendments to Stockholders at this time is not to have
available a defensive technique (although that would be a result of approval of
the amendment), but to have available a mechanism for increasing the capital of
the Fund in a way that might enhance the return of the Fund's common stock.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS. The following is a general
description of certain federal income tax consequences to the Fund and to its
common stockholders, of the possible issuance of preferred stock. Different
federal income tax consequences than those described below might result
depending on the specific terms of the preferred stock issued. The description
assumes that the Fund will continue to qualify as a regulated investment company
under the Internal Revenue Code of 1986, as amended (the" Code"), as it did in
its most recent fiscal year, so as to be relieved of federal income tax on net
investment income and net capital gains distributed to Stockholders. If the Fund
were prohibited from paying dividends on its common stock by the asset coverage
requirements of the preferred stock described above under "Description of
Proposed Preferred Stock," its qualification for taxation as a regulated
investment company conceivably could be jeopardized. The Fund expects, however,
that to the extent possible it would purchase or redeem preferred stock to
maintain compliance with such asset coverage requirements to avoid this negative
consequence. If the Fund failed to qualify for taxation as a regulated
investment company under the Code in any taxable year, the Fund would be subject
to tax on its taxable income at corporate rates, and all distributions from
earnings and profits would be taxable to Stockholders as ordinary income. In
addition, the Fund could be required to recognize unrealized gains, pay taxes
and interest and make distributions before re-qualifying for taxation as a
regulated investment company.
As a regulated investment company, the Fund is generally entitled to a
deduction for dividends paid to its Stockholders out of its ordinary income and
for interest paid on senior securities issued in the form of indebtedness. Under
the Code, a distribution will not qualify for the deduction for dividends paid
unless the distribution is pro rata, with no preferences to any share of the
Fund as compared with other shares of the same class, and with no preference to
one class of shares as compared with another class except to the extent that the
former is entitled (without reference to waivers of their rights by
Stockholders) to such preference. For this purpose, the preferred stock will
constitute a different class (or classes) of stock from the common stock. The
Fund intends to make all distributions on its preferred stock and common stock
in a manner that will allow such distributions to qualify for the dividends-paid
deduction.
The Board of Directors unanimously recommends that Stockholders vote FOR
the proposed amendment to the Articles of Incorporation to permit the Fund to
issue preferred stock.
PROPOSAL 3: APPROVAL OF THE ELIMINATION OF THE FUND'S
FUNDAMENTAL INVESTMENT POLICY THAT RESTRICTS ITS
ABILITY TO PURCHASE SECURITIES ON MARGIN
The Fund is subject to certain "fundamental" investment policies that
govern its investment activities. Under the 1940 Act, "fundamental" investment
policies may be changed or eliminated only if shareholders approve such action.
-13-
One of the Fund's fundamental investment policies currently prohibits it from
purchasing securities on margin, except to obtain such short-term credits as are
necessary for the clearance of securities transactions, and to make margin
payments in connection with futures contracts and related options. Margin
purchases involve the purchase of securities with money borrowed from a broker,
bank or other lender. The "margin" is the cash or eligible securities that the
borrower pledges to the lender as collateral for the margin loan.
The Fund also has non-fundamental investment policies that can be changed
by its Board of Directors without shareholder approval. Previously, the Fund's
non-fundamental policy on borrowings permitted the Fund to engage in only
unsecured borrowings. Recently, at the recommendation of DIA, the Board changed
this policy to permit both unsecured and secured borrowings. However, the Fund's
limitation on margin purchases could be interpreted to prohibit it from pledging
assets as security for borrowings. Although the Fund may be subject to
limitations on the use of margin under the 1940 Act and the SEC staff
interpretations, it is not required to have a fundamental investment limitation
on its ability to engage in margin transactions. The Board has proposed that
this fundamental investment policy be eliminated to remove the inconsistency
with the Fund's policy permitting secured borrowings.
Borrowing for investment purposes, whether on a secured or unsecured basis,
is known as "leverage". If the Fund were to leverage its portfolio there is a
likelihood of greater volatility of net asset value and market price of the
Fund's common stock. This risk pertains to all forms of leveraging, either
borrowing or issuing preferred stock. If the Fund were to borrow money and
thereby incur an obligation to pay interest, the total return that the Fund
earns on the securities purchased with borrowed monies which is in excess of the
interest paid will cause the net asset value of the Fund's shares (and the
return of the Fund) to increase to a greater extent than would otherwise be the
case. Conversely if the total return that the Fund earns on the additional
securities purchased fails to cover the interest incurred on the monies
borrowed, the net asset value of the Fund (and the return of the Fund) would be
lower than would otherwise be the case if leverage had not been used. In
addition, if the Fund borrows at a variable interest rate, there is a risk that
fluctuations in the interest rate may adversely affect the return to the holders
of the Fund's common stock. However, if the Fund borrows at a variable interest
rate, DIA may enter into hedging transactions using either interest rate swaps
or caps in order to reduce the impact of changes in the interest rate. Borrowing
on a secured basis would result in certain additional risks. Should securities
that are pledged as collateral to secure the borrowing decline in value, or if
the lender increases the maintenance margin requirements (i.e. reduce the
percentage of a position that can be financed), additional funds in the form of
cash or securities may have to be deposited with the lender to avoid liquidation
of those pledged assets. In the event of a steep drop in the value of pledged
securities, it might not be possible to liquidate assets quickly enough to pay
off the margin debt and this could result in mandatory liquidation of the
pledged assets in a declining market at relatively low prices. Furthermore,
DIA's ability to sell the pledged securities may be restricted by the terms of
the loan, which may reduce DIA's investment flexibility over the pledged
securities. In addition, the rights of any lenders to receive payments of
interest on and repayments of principal will be senior to the rights of the
Fund's Stockholders. Successful use of a leveraging strategy may depend on DIA's
-14-
ability to predict correctly interest rates and market movements, and there is
no assurance that a leveraging strategy will be successful during any period in
which it is employed.
The Board is recommending that Stockholders approve the elimination of the
Fund's fundamental investment policy restricting its ability to purchase
securities on margin, principally because such investment policy is more
restrictive than is required under the federal securities laws, and it may be
interpreted to prevent the Fund from engaging in secured borrowings. Therefore,
this policy unnecessarily restricts the Fund from taking advantage of potential
investment opportunities and techniques available to it and industry
competitors. The elimination of this policy would not affect the Fund's
investment objective and does not increase the amount that the Fund is permitted
to borrow. The proposed change instead would provide for greater investment
flexibility in the borrowing options available to the Fund, thus affording it
the maximum ability to adapt to changing economic and market conditions.
The Board of Directors unanimously recommends that Stockholders vote FOR
approval of the elimination of the Fund's fundamental investment policy that
restricts its ability to purchase securities on margin.
PROPOSAL 4: AMENDMENT TO THE FUND'S INVESTMENT ADVISORY
AGREEMENT TO INCREASE THE ADVISORY FEE PAYABLE TO DIA
BY AUTHORIZING IT TO BE COMPENSATED ON THE ASSETS RELATING TO DEBT
DIA serves as investment adviser to the Fund pursuant to an investment
advisory agreement dated April 1, 1995 (the "Current Agreement"). The Current
Agreement was approved by Stockholders at a special meeting held on February 8,
1995, in connection with a change in control of the investment adviser. The
Current Agreement was last approved by the Board of Directors on February 11,
2003, when the directors, including a majority of the disinterested directors,
approved its continuation for a twelve-month period commencing April 1, 2003.
In the Current Agreement, DIA agrees, subject to the supervision of the
Fund's Board of Directors, to provide a continuous investment program and
strategy for the Fund, including investment research and management with respect
to all of its securities, other investments, and cash equivalents and to make
decisions with respect to and place orders for all purchases and sales of
portfolio securities. The Current Agreement also requires DIA to prepare or
supervise the preparation of reports to the Securities and Exchange Commission
or any other governmental authority; provide personnel to act as officers of the
Fund and pay the salaries of such officers; assist to the extent requested by
the Fund with the Fund's preparation of its annual and semi-annual reports to
stockholders; transmit information concerning purchases and sales of the Fund's
portfolio securities to the custodian for proper settlement; supply the Fund and
its Board of Directors with reports and statistical data as requested; and
prepare a quarterly brokerage allocation summary.
The Current Agreement provides that DIA will not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with the performance of the agreement, except a loss resulting from a breach of
-15-
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith, or gross negligence on the
part of DIA in the performance of its duties or from reckless disregard of its
obligations and duties under the Current Agreement.
For its services under the Current Agreement, DIA is entitled to receive a
monthly advisory fee at the annual rate of .65% of the Fund's average weekly net
assets up to $100,000,000 and .50% of the Fund's average weekly net assets over
$100,000,000. At the Meeting, Stockholders will be asked to approve an amendment
to the Current Agreement (the "Amendment") to change the base amount used to
calculate DIA's advisory fee. A copy of the Amendment is included as Exhibit B
to this Proxy Statement. Under the Current Agreement, the investment advisory
fee is calculated by multiplying the specified annual percentage rate by a base
amount equal to the Fund's average weekly net assets. The Fund's net assets
consist of its total assets minus its liabilities. Net assets include the
liquidation preference of any outstanding preferred stock, but not assets
relating to debt.
If the Amendment is approved, the advisory fee would be calculated by
multiplying the specified annual percentage rate by a base amount equal to the
average weekly value of the Fund's "Managed Assets". Managed Assets are defined
as the Fund's total assets minus the sum of the Fund's liabilities, which
liabilities exclude debt relating to leverage, short-term debt and the aggregate
liquidation preference of any outstanding preferred stock. The foregoing
specified annual percentage rates would be unchanged from the Current Agreement,
but the dollar amount of fees payable under the Amendment will be higher from
those payable under the Current Agreement to the extent that the Fund engages in
debt relating to leverage or short-term debt, including issuing senior
securities related to debt such as commercial paper or other notes, or borrows
money from banks or other lenders (hereinafter collectively referred to as
"borrowings"). The proposed change to the advisory fee structure may provide DIA
with an incentive to increase the Managed Assets upon which it is compensated by
engaging the Fund in borrowings. However, although not required, DIA has
informed the Board that if the Amendment is approved, it intends to voluntarily
waive its advisory fee on the incremental assets related to borrowings unless
the Fund out-performs the interest rate of the borrowings, in accordance with a
calculation to be approved by the Board. The exact terms of this fee
calculation, however, have not yet been finalized.
The aggregate amount of the advisory fee that the Fund paid to DIA during
the fiscal year ended December 31, 2002 was $878,334. Had the Amendment been in
effect during 2002, the aggregate amount of the advisory fee would have been the
same because the Fund did not enter into any borrowings. Under the Fund's
current investment policies, the Fund is permitted to issue senior securities,
such as preferred stock and engage in borrowings in an amount not exceeding 15%
of the value of its total assets when DIA believes that the return from
securities purchased with borrowed funds will be greater than the cost of the
borrowings. The Board of Directors may increase this amount without approval by
Stockholders to the full extent permitted under the 1940 Act. Had the Fund
entered into borrowings to the full extent permitted under its current
investment policies, and without taking into consideration the amount of any
proposed waiver by DIA, the aggregate amount of the advisory fee would have been
$1,008,729, representing a 14.85% increase in the dollar amount of the actual
fee paid in 2002.
-16-
The following table shows the Fund's expenses expressed as a percentage of
average assets attributable to common stock: (i) based on actual expenses
incurred during the fiscal year ended December 31, 2002 under the Current
Agreement; and (ii) on a pro-forma basis as if the Amendment had been in effect
during 2002 and the Fund had entered into borrowings at an estimated borrowing
rate of 5.56% (representing the rate as of February 28, 2003 for 10+ year, high
quality corporate bonds per Merrill Lynch Bond Indexes as reported in the Wall
Street Journal) to the full extent permitted under its current investment
policies. If the proposal is approved, the interest rate on the borrowed funds
and the actual annual expenses may be substantially higher or lower than the
estimated amount.
ANNUAL EXPENSES (as a percentage of net assets attributable to common stock)
2002 (ACTUAL) 2002 (PRO FORMA)
Based on Net Assets Based on Managed Assets
------------------- -----------------------
Management Fees .................. .60% .69%
Estimated interest payments on
borrowed funds ................. 0% 1.00%
Other Expenses ................... .33% .33%
------ ------
Total Annual Expenses ............ .93% 2.02%
------ ------
EXAMPLE: The following table shows the expenses a Stockholder of the Fund would
pay on an investment of $1,000, assuming a 5% annual return and redemption at
the end of each period. This example should not be considered a representation
of future return or expenses. Actual return or expenses may be greater or less
than those shown.
Period 2002 (ACTUAL) 2002 (PRO FORMA)
Based on Net Assets Based on Managed Assets
------------------- -----------------------
1 year............................ $ 9.53 $ 20.71
3 years........................... $ 29.77 $ 52.12
5 years........................... $ 51.68 $ 73.56
10 years.......................... $114.70 $135.23
If approved by the Stockholders at the Meeting, the Amendment will become
effective immediately. If the Amendment is not approved, the Current Advisory
Agreement will remain in effect until April 1, 2004, subject to further
continuation or earlier termination in accordance with its terms.
On February 11, 2003 the Board of Directors of the Fund met in person to
consider whether it would be in the best interests of the Fund and its
Stockholders to enter into the Amendment to the Current Agreement. In
considering the best interests of the Fund and its Stockholders, the directors
took into account all factors that they deemed relevant. The factors considered
included the nature, quality and extent of the services furnished to the Fund by
DIA; the increased complexity of the securities markets; the investment record
of the Fund; the expense ratio of the Fund; data on investment performance,
advisory fees and expense ratios of comparable investment companies; benefits to
-17-
DIA from the revised fee calculation in the Amendment; current and developing
conditions in the financial services industry; the profitability to DIA of the
Current Agreement and the financial resources of DIA and the continuance of
appropriate incentives to assure that DIA will continue to furnish high-quality
services to the Fund.
After reviewing and discussing the terms and provisions of the Amendment in
light of the foregoing factors, the Board of Directors of the Fund, including
all of the directors who are not interested persons of the Fund or DIA, has
concluded that the proposed fee change is in the best interests of the Fund and
its Stockholders because it aligns DIA's compensation more closely with the
actual value of all of the potential assets under management. The Fund's
portfolio is comprised of assets purchased with the proceeds of the Fund's
common stock. Under the Fund's current investment policies, it could invest up
to 15% of its total assets in borrowings, yet, when the management fee is
calculated under the Current Agreement, any assets purchased with the proceeds
of such borrowings would be excluded from the net assets of the Fund. As a
result, DIA's compensation does not accurately reflect the full size and scope
of the Fund's potential portfolio. The Board of Directors of the Fund believes
that including the aggregate proceeds of any borrowings would yield a truer
picture of the Fund's potential net assets and a fairer basis for calculating
DIA's compensation. Also, although not required, DIA has informed the Board that
it intends to voluntarily waive its advisory fee on the incremental assets
related to borrowings or the issuance of preferred stock unless the Fund
out-performs the interest rate or dividend rate of such strategies, in
accordance with a calculation to be approved by the Board. The exact terms of
this fee calculation, however, have not yet been finalized.
The Board of Directors unanimously recommends that Stockholders vote FOR
approval of the Amendment to the Investment Advisory Agreement.
VOTES REQUIRED FOR THE ELECTION OF DIRECTORS AND
APPROVAL OF OTHER PROPOSALS AND MATTERS AT THE MEETING
A quorum for the transaction of business at the Meeting is constituted by
the presence in person or by proxy of holders of a majority of the outstanding
shares of common stock of the Fund. If a Proxy is properly submitted accompanied
by instructions to withhold authority, or is marked with an abstention, the
shares represented thereby will be considered to be present at the Meeting for
purposes of determining the existence of a quorum for the transaction of
business. Similarly, broker "non-votes" (I.E., proxies from brokers or nominees
indicating that such persons have not received instructions from the beneficial
owner or other persons entitled to vote shares on a particular matter with
respect to which the brokers or nominees do not have discretionary power) will
be considered to be present at the Meeting for purposes of determining the
existence of a quorum for the transaction of business.
In the event that a quorum is not present at the Meeting or at any
adjournment thereof, or in the event that a quorum is present at the Meeting but
sufficient votes to approve the proposal are not received by the Fund, one or
more adjournment(s) may be proposed to permit further solicitations of proxies.
Any adjourned session or sessions may be held after the date set for the
-18-
original Meeting without notice except announcement at the Meeting. Any such
adjournment(s) will require the affirmative vote of a majority of the
outstanding shares of common stock that are represented at the Meeting in person
or by proxy. If such a quorum is present, the persons named as proxies will vote
those proxies which they are entitled to vote FOR the proposals in favor of such
adjournment(s), and will vote those proxies required to be voted AGAINST the
proposals against any such adjournment(s). A Stockholder vote may be taken with
respect to the Fund on some or all matters before any such adjournment(s) if a
quorum is present and sufficient votes have been received for approval with
respect to the Fund.
In Proposal 1, relating to the election of directors, the nominees
receiving the highest number of votes cast at the Meeting will be elected,
assuming that each receives the votes of a majority of the outstanding shares of
common stock. The withholding of voting authority with respect to the election
of a director means that the shares withheld will not be counted toward the
required majority. Approval of Proposal 2, relating to the amendment to the
Articles of Incorporation, requires the affirmative vote of a majority of the
outstanding shares of common stock. Approval of Proposal 3, relating to the
elimination of the Fund's fundamental policy that restricts its ability to
purchase securities on margin, and Proposal 4, relating to the amendment to the
investment advisory agreement, require the affirmative vote of a "majority of
the outstanding voting securities" of the Fund. The term "majority of the
outstanding voting securities" means the vote, at the annual meeting of the
security holders of (a) 67% or more of the voting securities present at such
meeting, if the holders of more than 50% of the outstanding voting securities
are present or represented by proxy; or (b) more than 50% of the outstanding
voting securities, whichever is less. Under Maryland law, abstentions will have
the effect of a "no vote" for purposes of obtaining the requisite approvals.
Broker "non-votes" will be treated the same as abstentions.
OTHER BUSINESS
The Management of the Fund does not know of any other matters to be brought
before the Meeting. If such matters are properly brought before the Meeting,
proxies not limited to the contrary will be voted in accordance with the best
judgment of the person or persons acting thereunder. To propose any business for
consideration at this Meeting (other than matters included in this Proxy
Statement), the By-Laws require a Stockholder to notify the Fund in writing by
the tenth day following the day on which notice of the meeting is mailed and to
provide such written information to the Fund as its Secretary may reasonably
require. This Proxy Statement is expected to be mailed to Stockholders on April
3, 2003, and, if such occurs, any such notice must be received by the Fund on or
before April 13, 2003.
ADDITIONAL INFORMATION
INVESTMENT ADVISER
DIA is located at 1225 Seventeenth Street, 26th Floor, Denver, CO 80202.
DIA is a limited liability company organized in 1994. As of December 31, 2002,
DIA had approximately $5.4 billion assets under management (including
approximately $440 million for twelve investment portfolios).
-19-
The name and principal occupation of the principal executive officers of
DIA are listed in the following chart. The address of each is c/o DIA, 1225
Seventeenth Street, 26th Floor, Denver, Colorado 80202.
NAME POSITION WITH DIA
---- -----------------
Jeffrey D. Adams Chief Operating Officer and Executive Manager
Todger Anderson President and Executive Manager
Glen T. Cahill Vice President and Management Committee Member
William S. Chester Vice President and Management Committee Member
Alex W. Lock Vice President and Management Committee Member
Kenneth V. Penland, Chairman and a nominee for re-election as a director of
the Fund, was an officer, executive manager and member of DIA until December 31,
2001. Todger Anderson, President and a director of the Fund, is an officer,
executive manager and member of DIA. Mark M. Adelmann, Vice President of the
Fund, is a Vice President and member of DIA. Jasper R. Frontz, Treasurer of the
Fund, is also a Vice President of DIA. Effective January 1, 2002, Mr. Penland's
14.75% ownership interest in DIA was exchanged for a participation in the
revenues of DIA over a four-year period.
DIA also acts as investment adviser to the investment portfolios of
Westcore Trust. The following table contains information as of December 31, 2002
with respect to such investment portfolios that have similar investment
objectives to the Fund:
Annual Rate of DIA's
Compensation as a
Net Assets Managed by Percentage of Net
Name of Portfolio DIA as of December 31, 2002 Assets Managed by DIA
----------------- --------------------------- ---------------------
Westcore Trust-Blue Chip Fund $29,476,507 .65%(1)
----------
1. DIA serves as investment adviser for this fund. DIA has contractually
agreed to waive a portion of its investment advisory fee and/or reimburse
other expenses for this fund from October 1, 2002 until at least September
30, 2003 so that the net annual fund operating expenses will be no more
than 1.15% for such period.
CO-ADMINISTRATORS
DIA and ALPS Mutual Funds Services, Inc. ("ALPS") serve as
co-administrators for the Fund. ALPS is located at 1625 Broadway, Suite 2200,
Denver, CO 80202. For the administrative services provided, ALPS and DIA
received fees of $84,075 and $11,043, respectively, for the fiscal year ended
December 31, 2002.
-20-
STOCKHOLDER PROPOSALS - ANNUAL MEETING IN THE YEAR 2004
A Stockholder who intends to present a proposal which relates to a proper
subject for Stockholder action at the Annual Meeting of Stockholders in the year
2004, and who wishes such proposal to be considered for inclusion in the Fund's
proxy materials for such meeting, must cause such proposal to be received, in
proper form, at the Fund's principal executive offices no later than November
30, 2003. Any such proposals, as well as any questions relating thereto, should
be directed to the Fund to the attention of its President.
April 3, 2003
STOCKHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING AND WHO WISH TO HAVE
THEIR SHARES VOTED ARE REQUESTED TO DATE AND SIGN THE ENCLOSED PROXY AND RETURN
IT IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED
STATES. YOU MAY ALSO CHOOSE TO CAST YOUR VOTE BY TELEPHONE OR VIA THE INTERNET,
INSTEAD OF BY MAIL.
-21-
EXHIBIT A
BLUE CHIP VALUE FUND, INC.
PROPOSED AMENDMENT NO. 1 TO THE ARTICLES OF INCORPORATION
ARTICLE IX
Section 9.4. In furtherance, and not in limitation of the powers conferred by
the laws of the State of Maryland, the Board of Directors is expressly
authorized:
. . . .
(c) To classify or reclassify any unissued stock from time to time by
setting or changing the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, or terms or
conditions of redemption of the stock.
-22-
EXHIBIT B
PROPOSED AMENDMENT NO. 1
TO
INVESTMENT ADVISORY AGREEMENT
WHEREAS, Blue Chip Value Fund, Inc. (the "Fund") and Denver Investment
Advisors LLC (the "Investment Advisor") desire to amend the Investment Advisory
Agreement (the "Agreement") dated April 1, 1995, by and among them under which
the Investment Adviser renders investment advisory and certain administrative
services to the Fund; and
The parties hereto, intending to be legally bound hereby, agree that the
Agreement is amended as follows:
7. COMPENSATION.
COMPENSATION. For the services provided to the Fund pursuant to this
Agreement, the Fund will pay to the Investment Advisor a fee, payable on or
before the tenth (10th) day of each calendar month, at the annual rates of
sixty-five one-hundredths of one percent (0.65%) of the average of the first
$100,000,000 of the Fund's Managed Assets (as defined below) and fifty
one-hundredths of one percent (0.50%) of the average of the Fund's Managed
Assets in excess of $100,000,000 as of the close of the last business day of the
New York Stock Exchange in each calendar week during the preceding calendar
month. Such fees shall be reduced as required by expense limitations imposed
upon the Fund by any state in which shares of the Fund are sold. Reductions
shall be made at the time of each monthly payment on an estimated basis, if
appropriate, and an adjustment to reflect the reduction on an annual basis shall
be made, if necessary, in the fee payable with respect to the last month in any
calendar year of the Fund. The Investment Advisor shall within ten (10) days
after the end of each calendar year refund any amount paid in excess of the fee
determined to be due for such year.
If this Agreement shall become effective subsequent to the first day
of a month, or shall terminate before the last day of a month, the Investment
Advisor's compensation for such fraction of the month shall be determined by
applying the foregoing percentages to the average of the weekly Managed Assets
during such fraction of a month (or, if none, to the Managed Assets as
calculated on the last day of the preceding month on which the New York Stock
Exchange was open for trading) and in the proportion that such fraction of a
month bears to the entire month.
"Managed Assets" means the average weekly value of the Fund's total
assets minus the sum of the Fund's liabilities, which liabilities exclude debt
relating to leverage, short-term debt and the aggregate liquidation preference
of any outstanding preferred stock.
-23-
[Signature lines omitted]
-24-
FORM OF PROXY CARD
BLUE CHIP VALUE FUND, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF BLUE CHIP VALUE FUND,
INC. (THE "FUND") FOR USE AT THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON
MAY 20, 2003 AT 12:00 NOON AT THE OFFICES OF DENVER INVESTMENT ADVISORS LLC,
1225 SEVENTEENTH STREET, 26TH FLOOR, DENVER, COLORADO.
YOUR VOTE IS IMPORTANT
YOU CAN VOTE IN ONE OF THREE WAYS;
1. Mark, sign and date your proxy card and return it promptly in the enclosed
envelope.
OR
2. Call TOLL FREE 1-800-435-6710 on a Touch-Tone telephone and follow the
instructions on the reverse side. There is NO CHARGE to you for this call.
OR
3. Vote by Internet at our Internet Address: http://www.eproxy.com/blu
PLEASE VOTE
TELEPHONE AND INTERNET VOTING WILL NOT BE AVAILABLE
AFTER 11 PM EDT ON MONDAY, MAY 19, 2003.
The undersigned hereby appoints Margaret R. Jurado and Jeffrey D. Adams,
and each of them, with full power of substitution, as proxies of the undersigned
to vote at the above-stated Annual Meeting, and all adjournments thereof, all
shares of common stock held of record by the undersigned on the record date for
the Meeting, upon the following matters, and upon any other matter which may
properly come before the Meeting and at any adjournment thereof, at their
discretion.
1. Election of Directors: Kenneth V. Penland
Roberta M. Wilson
____ FOR all nominees listed (except as marked to the contrary)
____ WITHHOLD AUTHORITY to vote for all nominees listed
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, WRITE THE NAME(S) ON THE LINE PROVIDED BELOW.)
----------------------------------
2. To approve an amendment to the Fund's Articles of Incorporation to
permit the Fund to issue additional classes of stock, including
preferred stock.
____ FOR ____ AGAINST ____ ABSTAIN
3. To approve the elimination of the Fund's fundamental policy that
restricts its ability to purchase securities on margin.
____ FOR ____ AGAINST ____ ABSTAIN
4. To approve an amendment to the Fund's investment advisory agreement
between the Fund and Denver Investment Advisors LLC to increase the
advisory fee payable to Denver Investment Advisors LLC by authorizing
it to be compensated on the assets of the Fund related to debt.
____ FOR ____ AGAINST ____ ABSTAIN
5. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the Meeting or any
adjournment thereof.
EVERY PROPERLY SUBMITTED PROXY WILL BE VOTED IN
THE MANNER SPECIFIED HEREON AND, IN THE ABSENCE OF
SPECIFICATION, WILL BE TREATED AS GRANTING
AUTHORITY TO VOTE FOR THE ELECTION OF DIRECTORS,
FOR THE AMENDMENT TO THE ARTICLES OF
INCORPORATION, FOR THE ELIMINATION OF THE FUND'S
FUNDAMENTAL POLICY THAT RESTRICTS ITS ABILITY TO
PURCHASE SECURITIES ON MARGIN AND FOR THE
AMENDMENT TO THE INVESTMENT ADVISORY AGREEMENT,
AND WITH DISCRETIONARY AUTHORITY TO VOTE UPON SUCH
OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
MEETING OR ANY ADJOURNMENT THEREOF. THE
UNDERSIGNED HEREBY REVOKES ANY PROXY PREVIOUSLY
GIVEN.
Sign here exactly as name(s) appear(s) on left
IF VOTING BY MAIL, PLEASE SIGN, DATE AND RETURN
PROMPTLY. RECEIPT OF NOTICE OF ANNUAL MEETING AND
PROXY STATEMENT IS HEREBY ACKNOWLEDGED.
Dated: _____________________________________, 2003
__________________________________________________
Signature
__________________________________________________
Signature if held jointly
IMPORTANT - Joint owners must EACH sign. When
signing as attorney, Trustee, executor,
administrator, guardian, or corporate officer,
please give your FULL title.
VOTE BY INTERNET OR TELEPHONE OR MAIL
24 HOURS A DAY, 7 DAYS A WEEK
INTERNET AND TELEPHONE VOTING IS AVAILABLE THROUGH 11 PM EASTERN
TIME THE DAY PRIOR TO ANNUAL MEETING DAY.
YOUR INTERNET OR TELEPHONE VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR SHARES
IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY CARD.
INTERNET TELEPHONE MAIL
http://www.eproxy.com/blu 1-800-435-6710
Use the Internet to vote Use any touch-tone Mark, sign and
your proxy. Have your telephone to vote your date your proxy
proxy card in hand when proxy. Have your proxy card and return
you access the web site. OR card in hand when you OR it in the enclosed
You will be prompted to call. You will be postage-paid
enter your control number, prompted to enter your envelope.
located in the box below, control number, located
to create and submit an in the box below, and
electronic ballot. then follow the
directions given.
IF YOU VOTE YOUR PROXY BY INTERNET OR BY TELEPHONE,
YOU DO NOT NEED TO MAIL BACK YOUR PROXY CARD.