<PAGE>
PROSPECTUS
2,275,000 SHARES
OF
COMMON STOCK ISSUABLE UPON EXERCISE OF
RIGHTS TO SUBSCRIBE FOR SUCH SHARES OF COMMON STOCK
BLUE CHIP VALUE FUND, INC.
Blue Chip Value Fund, Inc. (the "Fund") is offering to its stockholders of
record as of the close of business on January 31, 1997 rights ("Rights"),
entitling the holders thereof to subscribe for an aggregate of 2,275,000
shares of the Fund's Common Stock (the "Offer") at the rate of one share of
Common Stock for each five (5) Rights held. Stockholders who fully exercise
their Rights will have, subject to certain limitations and subject to
allotment, an over-subscription privilege (the "Over-Subscription Privilege").
The Rights are non-transferable and will not be admitted for trading on the
New York Stock Exchange. See "The Offer." THE SUBSCRIPTION PRICE PER SHARE
WILL BE THE LESSER OF 95% OF THE LAST REPORTED SALE PRICE ON THE NEW YORK
STOCK EXCHANGE OR 95% OF NET ASSET VALUE ON MARCH 7, 1997 (THE "PRICING DATE")
OF A SHARE OF THE FUND'S COMMON STOCK.
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK TIME, ON MARCH 6, 1997 (THE
"EXPIRATION DATE"), THE 31ST DAY AFTER THE DATE OF THIS PROSPECTUS. SINCE THE
CLOSE OF THE OFFERING ON THE EXPIRATION DATE IS PRIOR TO THE PRICING DATE,
HOLDERS WHO CHOOSE TO EXERCISE THEIR RIGHTS WILL NOT KNOW THE SUBSCRIPTION
PRICE PER SHARE AT THE TIME THEY EXERCISE SUCH RIGHTS.
The Fund is a closed-end diversified management investment company. Its
investment objective is to seek a high level of total return through capital
appreciation and current income consistent with investment primarily in a
diversified portfolio of common stocks. Denver Investment Advisors LLC (the
"Advisor") serves as the investment advisor to the Fund. The Fund employs the
Advisor's Modern Value Investing(R) approach. Using this approach, the Fund
will generally be fully invested in approximately 50 common stocks believed by
the Advisor to represent the best values among those issued by (a) the 300
largest, dividend-paying companies with headquarters in the United States as
measured by the market value of publicly-traded common stock, or (b) the 300
largest, dividend-paying companies with headquarters in the United States as
measured by revenues. The address of the Fund is 1225 Seventeenth Street, 26th
Floor, Denver, Colorado 80202 and its telephone number is (800) 624-4190. The
Fund's Common Stock is listed on the New York Stock Exchange under the symbol
"BLU."
The Fund announced the proposed Offer on January 6, 1997. The net asset
values per share of Common Stock at the close of business on January 3, 1997
and January 24, 1997 were $8.95 and $9.35, respectively, and the last reported
sale prices of a share of the Fund's Common Stock on such Exchange on those
dates were $9.25 and $9.875, respectively. (Continued on following page)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PROCEEDS TO
PRICE(1) SALES LOAD FUND(1)(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................... $8.88 None $8.88
- --------------------------------------------------------------------------------
Total....................................... $20,202,000 None $20,202,000
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
(1) Estimated based on an assumed Price per Share of 95% of the net asset
value of a share of the Fund's Common Stock on January 24, 1997. Pursuant
to the Over-Subscription Privilege, the Fund may increase the number of
shares subject to subscription by up to 25% of the shares offered hereby.
If the Fund increases the number of shares subject to subscription by 25%,
the Total Price will be $25,252,500 and the Total Proceeds will be
$25,252,500.
(2) Before deduction of expenses payable by the Fund, estimated at $100,000.
--------------
As a result of the terms of this offer, stockholders who do not exercise
their Rights will, upon the completion of the Offer, own a smaller
proportional interest in the Fund. In addition, because the Subscription Price
per share will be less than the current net asset value per share, the Offer
will result in a reduction of net asset value, which will dilute the holdings
of stockholders who do not exercise their Rights.
--------------
This Prospectus sets forth concisely the information that stockholders
should consider before exercising their Rights. Stockholders should retain
this Prospectus for future reference. Additional information about the Fund,
contained in a Statement of Additional Information, has been filed with the
Securities and Exchange Commission and is available upon request without
charge by contacting the Fund at its telephone number or address shown above.
The Statement of Additional Information bears the same date as, and is
incorporated by reference in its entirety into, this Prospectus. The table of
contents of the Statement of Additional Information appears at the end of this
Prospectus.
--------------
JANUARY 31, 1997
<PAGE>
FEE TABLE
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load.............................................................. None
Dividend Reinvestment and Cash Purchase Plan Fees....................... None
ANNUAL EXPENSES (as a percentage of net assets)
Management Fees......................................................... 0.64%
Other Expenses.......................................................... 0.42%
----
Total Annual Expenses................................................. 1.06%
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming a 5% annual
return...................................... $11 $34 $58 $129
</TABLE>
The purpose of the Fee Table is to assist stockholders in understanding the
various costs and expenses that stockholders bear directly or indirectly. For
a more complete description of these costs and expenses, see "MANAGEMENT OF
THE FUND--Expenses of the Fund."
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR RATES OF RETURN. THE ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
2
<PAGE>
FINANCIAL HIGHLIGHTS
The table below sets forth selected data for a share of Common Stock
outstanding throughout each period presented. The per share operating
performance and ratios for each of the five years in the period ended December
31, 1995 have been audited by Ernst & Young LLP, the Fund's independent
auditors, whose reports thereon were unqualified. The following information
should be read in conjunction with the Financial Statements and Notes thereto,
which are incorporated by reference into the Statement of Additional
Information. Further information about the performance of the Fund is
available in the semi-annual report to stockholders and the annual report to
stockholders. The Statement of Additional Information, the semi-annual report
to stockholders and the annual report to stockholders may be obtained from the
Fund free of charge by calling 1-800-624-4190.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, --------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990
------------ ------------ ------------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE
OPERATING
PERFORMANCE
Net Asset Value,
Beginning of
Period.......... $ 8.47 $ 6.98 $ 7.73 $ 7.63 $ 8.36 $ 6.97 $ 7.83
Net Proceeds from
Stock Offering.. 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Net Investment
Income.......... 0.07 0.13 0.11 0.20 0.12 0.13 0.14
Net Gains or
(Losses) on
Securities (both
realized and
unrealized)..... 0.95 2.45 (0.11) 0.72 (0.08) 2.22 (0.25)
------------ ------------ ------------- ------------ ------------ ------------ -------------
Total From
Investment
Operations...... 1.02 2.58 0.00 0.92 0.04 2.35 (0.11)
Less
Distributions:
Dividends (from
net investment
income)........ 0.03 0.13 0.11 0.20 0.12 0.13 0.14
Distributions
(from
capital gains).. 0.00 0.95 0.38 0.14 0.00 0.00 0.00
Distributions in
Excess of
Realized
Gains(1)....... 0.00 0.00 0.00 0.41 0.48 0.78 0.00
Tax Return of
Capital(1)..... 0.00 0.01 0.26 0.07 0.17 0.05 0.61
------------ ------------ ------------- ------------ ------------ ------------ -------------
Total
Distributions... 0.03 1.09 0.75 0.82 0.77 0.96 0.75
------------ ------------ ------------- ------------ ------------ ------------ -------------
Net Asset Value,
End of Period... $ 9.46 $ 8.47 $ 6.98 $ 7.73 $ 7.63 $ 8.36 $ 6.97
============ ============ ============= ============ ============ ============ =============
Per Share Market
Value, End of
Period.......... $ 8.50 $ 7.625 $ 6.125 $ 7.875 $ 7.75 $ 7.625 $ 6.00
Total Investment
Return.......... 11.9% 41.6% (13.2)% 12.5% 12.4% 44.9% (4.0)%
RATIOS/SUPPLEMENTAL
DATA
Net Assets, End
of Period....... $103,730,516 $92,886,640 $76,491,173 $84,168,306 $72,418,811 $78,221,238 $65,299,686
Ratio of Expenses
to Average Net
Assets.......... 1.10%(3) 1.15% 1.22% 1.28% 1.42% 1.63% 1.96%
Ratio of Net
Investment
Income to
Average
Net Assets...... 1.49%(3) 1.55% 1.46% 2.55% 1.57% 1.66% 1.96%
Portfolio
Turnover Rate... 22% 51% 63% 56% 118% 119% 104%
Average
Commission
Rate Paid(4) ... $ 0.05 N/A N/A N/A N/A N/A N/A
<CAPTION>
PERIOD FROM
FEBRUARY 4, 1987
(COMMENCEMENT OF
YEAR ENDED DECEMBER 31, OPERATIONS)
------------------------- THROUGH DECEMBER
1989 1988 31, 1987
------------ ------------ ------------------
<S> <C> <C> <C>
PER SHARE
OPERATING
PERFORMANCE
Net Asset Value,
Beginning of
Period.......... $ 7.13 $ 6.68 $ 0.00
Net Proceeds from
Stock Offering.. 0.00 0.00 9.22
Net Investment
Income.......... 0.25 0.20 0.15
Net Gains or
(Losses) on
Securities (both
realized and
unrealized)..... 1.23 0.44 (2.58)
------------ ------------ ------------------
Total From
Investment
Operations...... 1.48 0.64 (2.43)
Less
Distributions:
Dividends (from
net investment
income)........ 0.30 0.19 0.11
Distributions
(from
capital gains).. 0.00 0.00 0.00
Distributions in
Excess of
Realized
Gains(1)....... 0.48 0.00 0.00
Tax Return of
Capital(1)..... 0.00 0.00 0.00
------------ ------------ ------------------
Total
Distributions... 0.78 0.19 0.11
------------ ------------ ------------------
Net Asset Value,
End of Period... $ 7.83 $ 7.13 $ 6.68
============ ============ ==================
Per Share Market
Value, End of
Period.......... $ 7.00 $ 6.00 $ 5.50
Total Investment
Return.......... 30.4% 12.6% (44.2)%
RATIOS/SUPPLEMENTAL
DATA
Net Assets, End
of Period....... $73,316,564 $66,786,925 $62,516,023
Ratio of Expenses
to Average Net
Assets.......... 1.98% 2.22% 2.12%(2)
Ratio of Net
Investment
Income to
Average
Net Assets...... 3.25% 2.82% 2.46%(2)
Portfolio
Turnover Rate... 165% 135% 97%
Average
Commission
Rate Paid(4) ... N/A N/A N/A
</TABLE>
- -------
(1) From 1989 through 1993 the Fund distributed to stockholders quarterly an
amount equal to 2.5% (10% on an annual basis) of the Fund's net asset
value per share, without regard to net investment income and net capital
gains. These distributions were previously reported as returns of capital
in the Fund's annual reports to stockholders. Under new accounting
guidelines, the distributions have been reclassified into two categories:
(i) distributions in excess of realized gains, which are distributions
attributable to realized gains in the current year offset by loss
carryovers from prior years--which are taxable to the recipient as
ordinary income, and (ii) tax return of capital, which are distributions
that are in excess of current and accumulated earnings and profits--which
are not taxable to stockholders.
(2) Computed for the period, from February 4, 1987 (commencement of
operations) through December 31, 1987, annualized.
(3) Annualized.
(4) Required for fiscal years beginning on or after September 1, 1995.
3
<PAGE>
SENIOR SECURITIES
At the time of its organization and public offering in 1987, the Fund
borrowed a total of $7,375,500 in the form of 8 1/2% Senior Installment Notes
(the "Notes"). Pursuant to the Notes, the Fund made monthly payments of
principal and interest, the last of which was paid in May 1993. The Fund has
had no Senior Securities outstanding since May 1993. The following table sets
forth the principal amount of the Notes outstanding at the end of each year,
together with the asset coverage for each $1,000 of indebtedness.
<TABLE>
<CAPTION>
ASSET COVERAGE PER
TOTAL AMOUNT $1,000 OF
DECEMBER 31 OUTSTANDING INDEBTEDNESS
----------- ------------ ------------------
<S> <C> <C>
1995 $ 0 $ N/A
1994 0 N/A
1993 0 N/A
1992 643,172 113,596
1991 2,097,368 38,295
1990 3,433,466 20,019
1989 4,661,055 16,730
1988 5,788,949 12,537
1987 6,742,194 10,272
</TABLE>
4
<PAGE>
THE OFFER
TERMS OF THE OFFER
The Fund hereby offers to the holders of its Common Stock of record as of
the close of business on January 31, 1997 (the "Record Date") the right to
subscribe for an aggregate of 2,275,000 shares of Common Stock (the "Shares")
of the Fund. Each such stockholder is being issued one (1) Right for each
share of Common Stock owned on the Record Date. The Rights entitle a
stockholder to acquire in the Primary Subscription at the Subscription Price
one (1) Share for each five (5) Rights held. Rights may be exercised at any
time during the Subscription Period, which commences on the date of this
Prospectus and ends as of 5:00 p.m. New York time, on March 6, 1997 (the
"Expiration Date"). A stockholder's right to acquire one (1) Share for each
five (5) Rights held is hereinafter referred to as the "Primary Subscription."
In addition, any stockholder who fully exercises all Rights issued to him is
entitled to subscribe for Shares which were not otherwise subscribed for in
the Primary Subscription. For purposes of determining the maximum number of
Shares a holder may acquire pursuant to the Offer, broker-dealers whose Shares
are held of record on the Record Date by Cede & Co. or by any other depository
or nominee will be deemed to be the holder of the Rights that are issued to
Cede & Co. or such other depository or nominee. Shares acquired pursuant to
the Over-Subscription Privilege are subject to allotment or increase, which is
more fully discussed below under "Over- Subscription Privilege."
The Rights are non-transferable. Therefore, only the underlying Shares, and
not the Rights, will be admitted for trading on the New York Stock Exchange.
Since fractional shares will not be issued, stockholders who receive, or who
are left with, fewer than five (5) Rights will be unable to exercise such
Rights and will not be entitled to receive any cash in lieu of fractional
shares.
IMPORTANT DATES TO REMEMBER
<TABLE>
<CAPTION>
EVENT DATE
----- ----
<S> <C>
Record date January 31, 1997
Subscription period February 3, 1997 through March 6, 1997
Expiration of the offer March 6, 1997
Pricing Date March 7, 1997
Confirmation to participants March 14, 1997
Final payment for shares March 28, 1997
</TABLE>
PURPOSES OF THE OFFER
The Board of Directors of the Fund has determined that it would be in the
best interests of the Fund and its stockholders to increase the assets of the
Fund available for investment. In addition, the Offer seeks to reward the
long-term stockholder by giving existing stockholders the right to purchase
additional Shares at a price below market value and net asset value without
brokerage commissions. Increasing the size of the Fund also might result in
lowering the Fund's expenses as a percentage of average net assets.
The purpose of setting the determination of the Subscription Price
subsequent to the Expiration Date is to insure that the Offer will attract the
maximum participation of stockholders with the minimum dilution to non-
participating stockholders.
The Advisor may benefit from the Offer because its fee is based on the net
assets of the Fund. It is not possible to state precisely the amount of
additional compensation the Advisor might receive as a result of the Offer
because it is not known how many Shares will be subscribed for and because the
proceeds of the Offer will be invested in additional portfolio securities
which will presumably fluctuate in value. One of the Fund's directors who
voted to authorize the Offer is affiliated with the Advisor and, therefore,
could benefit indirectly
5
<PAGE>
from the offer. The other four directors are not "interested persons" of the
Fund within the meaning of the Investment Company Act of 1940 (the "1940
Act").
The Fund may, in the future and at its discretion, from time to time, choose
to make additional rights offerings, for a number of shares and on terms which
may or may not be similar to this Offer.
OVER-SUBSCRIPTION PRIVILEGE
If some stockholders do not exercise all of their Rights, the remaining
unsubscribed Shares will be offered, by means of the Over-Subscription
Privilege, to holders of Rights who wish to acquire more than the number to
which their Rights entitle them. Holders of Rights who exercise their Rights
will be asked to indicate on the Exercise Form how many Shares they are
willing to acquire pursuant to this Over-Subscription Privilege. If there
remain sufficient Shares, all over-subscriptions will be honored in full. If
there are not sufficient Shares to honor all over-subscriptions, the Fund may,
at its discretion, issue up to an additional 25% of the Shares available
pursuant to the Offer in order to honor such over-subscriptions. To the extent
the Fund determines not to issue additional Shares to honor all over-
subscriptions, the available Shares will be allocated among those who
oversubscribe based solely on the number of shares of Common Stock held of
record on the Record Date. The percentage of remaining Shares each
oversubscribing holder may acquire may be rounded up or down to result in
delivery of whole Shares. The allocation process may involve a series of
allocations in order to assure that the total number of Shares available for
oversubscriptions are distributed on a pro-rata basis.
The Fund will not offer or sell any shares which are not subscribed for
pursuant to the Primary Subscription or the Over-Subscription Privilege.
THE SUBSCRIPTION PRICE
The Subscription Price for the Shares to be issued on the exercise of the
Rights will be the lesser of 95% of the last reported sale price on the New
York Stock Exchange or 95% of net asset value on March 7, 1997 (the "Pricing
Date") of a share of the Fund's Common Stock.
The Fund announced the proposed Offer on January 6, 1997. The net asset
values per share of the Fund's Common Stock at the close of business on
January 3, 1997 and January 24, 1997 were $8.95 and $9.35, respectively, and
the last reported sale prices of a share of the Fund's Common Stock on such
Exchange on those dates were $9.25 and $9.875, respectively. As an example,
the Subscription Price would have been $8.50 or $8.88 had the Subscription
Price been determined on those respective dates. The actual Subscription Price
will not be determined until the Pricing Date.
EXPIRATION OF THE OFFER
The Offer will expire at 5:00 p.m., New York time, on March 6, 1997, the
31st day after the date of this Prospectus (the "Expiration Date"). Rights
will expire on the Expiration Date and thereafter may not be exercised.
Inasmuch as the close of the offering on the Expiration Date is prior to the
time of pricing the Offering, stockholders who decide to acquire Shares in the
Primary Subscription or pursuant to the Over-Subscription Privilege will not
know the Subscription Price per share when they make their decisions.
SUBSCRIPTION AGENT
The Subscription Agent for the Offer is ChaseMellon Shareholder Services,
L.L.C., 85 Challenger Road, Overpeck Centre, Ridgefield Park, NJ 07660, which
will receive a fee in the amount of $35,000 (estimated) and reimbursement for
all out-of-pocket expenses related to the Offer. Stockholders who acquire
shares pursuant to the Offer will not receive interest on funds held by the
Subscription Agent. The Subscription Agent will hold such funds in a
segregated, depository account, and will pay interest thereon to the Fund. The
Subscription Agent is also the Fund's Transfer Agent. Stockholder inquiries
relating to the Offer should be directed to the Fund by calling 1-800-624-
4190.
6
<PAGE>
METHOD OF EXERCISE OF RIGHTS
Rights may be exercised by filling in and signing the enclosed Exercise Form
and mailing it in the envelope provided, or delivering the completed and
signed Exercise Form to the Subscription Agent, together with payment for the
shares as described below under "Payment for Shares." Fractional shares will
not be issued, and stockholders who receive, or who are left with, fewer than
five (5) Rights will not be able to exercise such Rights. Exercise Forms must
be received by the Subscription Agent prior to 5:00 p.m., New York time, on
the Expiration Date (unless payment is effected by means of a notice of
guaranteed delivery (see "Payment for Shares") at the offices of the
Subscription Agent. Rights may also be exercised through a holder's broker.
PAYMENT FOR SHARES
Stockholders who acquire Shares in the Primary Subscription or pursuant to
the Over-Subscription Privilege may choose between the following methods of
payment:
(1) If, prior to 5:00 p.m., New York time, on the Expiration Date, the
Subscription Agent shall have received a notice of guaranteed delivery by
telegram or otherwise, from a bank or trust company or a New York Stock
Exchange member firm, together with payment of the full Subscription Price
for the Shares subscribed for in the Primary Subscription and any
additional Shares subscribed for pursuant to the Over-Subscription
Privilege, guaranteeing delivery of a properly completed and executed
Exercise Form, the subscription will be accepted by the Subscription Agent.
The Subscription Agent will not honor a notice of guaranteed delivery if a
properly completed and executed Exercise Form is not received by the
Subscription Agent prior to 5:00 p.m., New York time, on the fifth (5th)
business day after the Expiration Date.
(2) Alternatively, a stockholder can, together with the Exercise Form,
send payment for the Shares acquired in the Primary Subscription and any
additional Shares subscribed for pursuant to the Over-Subscription
Privilege, to the Subscription Agent based on an assumed purchase price of
$8.88 per Share. To be accepted, such payment, together with the Exercise
Form, must be received by the Subscription Agent prior to 5:00 p.m., New
York time, on the Expiration Date.
A PAYMENT BY CHECK, PURSUANT TO THE SECOND METHOD DESCRIBED ABOVE, MUST
ACCOMPANY ANY EXERCISE FORM FOR SUCH EXERCISE FORM TO BE ACCEPTED.
Within three (3) business days following the Pricing Date, a confirmation
will be sent by the Subscription Agent to each stockholder (or, if the Fund's
shares on the Record Date are held by Cede & Co. or any other depository or
nominee, to Cede & Co. or such other depository or nominee). The date of the
confirmation is referred to as the "Confirmation Date." The confirmation will
show (i) the number of Shares acquired pursuant to the Primary Subscription;
(ii) the number of Shares, if any, acquired pursuant to the Over-Subscription
Privilege; (iii) the per Share and total purchase price for the Shares; and
(iv) any additional amount payable by such stockholder to the Fund or any
excess to be refunded by the Fund to such stockholder, in each case based on
the Subscription Price as determined on the Pricing Date. In the case of any
such stockholder who exercises his right to acquire Shares pursuant to the
Over- Subscription Privilege, any such excess payment which would otherwise be
refunded to him will be applied by the Fund toward payment for Shares acquired
pursuant to exercise of the Over-Subscription Privilege. Any additional
payment required from a stockholder must be received by the Subscription Agent
prior to 5:00 p.m., New York time, on the tenth (10th) business day after the
Confirmation Date, and any excess payment to be refunded by the Fund to such
stockholder will be mailed by the Subscription Agent within ten (10) business
days after the Confirmation Date. All payments by a stockholder must be made
in United States dollars by money order or check drawn on a bank located in
the United States of America and payable to ChaseMellon Shareholder Services,
L.L.C.
Whichever of the above two methods is used, issuance and delivery of
certificates for the Shares subscribed for are subject to collection of checks
and actual payment pursuant to any notice of guaranteed delivery.
If a stockholder who acquires Shares pursuant to the Primary Subscription or
Over-Subscription Privilege does not make payment of any additional amounts
due, the Fund reserves the right to (i) find other purchasers for such
subscribed and unpaid shares; (ii) apply any payment actually received by it
toward the purchase of the
7
<PAGE>
largest number of whole Shares which could be acquired by such stockholder
with such payment upon exercise of the Primary Subscription and/or Over-
Subscription Privilege; and/or (iii) exercise the right to set-off against
payments actually received by it with respect to such subscribed Shares.
POSSIBLE SUSPENSION OR WITHDRAWAL OF THE OFFER
The Fund has, as required by the Securities and Exchange Commission's
registration form, undertaken to suspend the Offer until it amends this
Prospectus if, subsequent to January 31, 1997, the effective date of the
Fund's Registration Statement, the Fund's net asset value declines more than
10% from its net asset value as of January 31, 1997. Accordingly, the Fund
will notify stockholders of any such decline and thereby permit them to cancel
their exercise of Rights.
The Fund also reserves the right to withdraw the Offer if prior to the
Expiration Date the closing sales price for shares of the Fund's Common Stock
on the New York Stock Exchange represents less than 90% of the most recently
published net asset value per share of the Fund, i.e., if the discount exceeds
10% of net asset value per share.
PURCHASE AND SALE OF RIGHTS
The Rights are non-transferable and, therefore, may not be purchased or
sold. The Rights will not be admitted to trading on the New York Stock
Exchange. However, the Shares to be issued pursuant to the Rights will be
listed and admitted to trading on the New York Stock Exchange.
DELIVERY OF STOCK CERTIFICATES
Stock certificates for all Shares acquired pursuant to the Primary
Subscription and the Over-Subscription Privilege will be mailed within fifteen
(15) business days after the Confirmation Date and after full payment of the
Shares subscribed for has cleared.
TAX CONSEQUENCES
For Federal income tax purposes, neither the receipt nor the exercise of the
Rights will result in taxable income to holders of Common Stock, and no loss
will be realized if the Rights expire without being exercised.
A stockholder's holding period for a Share acquired upon exercise of Right
begins with the date of exercise. In the absence of a special election by the
stockholder, the stockholder's basis for determining gain or loss upon the
sale of a Share acquired upon exercise of a Right will be equal to the per
Share Subscription price. A stockholder's gain or loss recognized upon a sale
of that Share will be capital gain or loss if the Share was held as a capital
asset at the time of sale and will be long-term capital gain or loss if it was
held, at the time of sale, for more than one (1) year.
The foregoing does not cover the state or local tax consequences of
receiving or exercising a Right, as to which stockholders should consult their
own tax advisers.
SPECIAL RISK CONSIDERATIONS
As a result of the terms of the Offer, stockholders who do not exercise
their Rights will, at the completion of the Offer, own a smaller proportional
interest in the Fund. In addition, because the Subscription Price for each
Share will be less than the then current net asset value per share of the
Fund's Common Stock, the Offer will result in a reduction of net asset value
which will dilute the holdings of stockholders who do not exercise their
Rights. For example, assuming that all Shares offered hereby are purchased in
the Offer and the Fund increases the number of Shares subject to subscription
by 25% in order to satisfy the over-subscriptions, and that the Subscription
Price is 95% of the Fund's net asset value of $9.35 per share on January 24,
1997, the Fund's net asset value per share would be reduced by approximately
$0.09 per share as of that date, and assuming that only one-half of the Shares
offered hereby are purchased in the Offer, the Fund's net asset value per
share would be reduced by approximately $0.05 per share as of that date.
8
<PAGE>
USE OF PROCEEDS
Assuming all Shares offered hereby are sold at the estimated Subscription
Price of $8.88 per Share, the net proceeds of the offer are estimated to be
$20,102,000, after deducting expenses payable by the Fund estimated at
approximately $100,000. If the Fund in its sole discretion increases the
number of Shares subject to the Offer by 25% in order to satisfy over-
subscriptions, the additional net proceeds will be approximately $25,152,500.
It is anticipated that investment of such proceeds in accordance with the
Fund's investment objective and policies will occur promptly, and in any event
within ten business days, after they are available to the Fund.
THE FUND
Blue Chip Value Fund, Inc. is a Maryland corporation that was organized on
February 4, 1987. The Fund is a closed-end diversified management investment
company registered under the 1940 Act.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek a high level of total return
through capital appreciation and current income consistent with investment
primarily in a diversified portfolio of common stocks. There can be no
assurance that the Fund will achieve its investment objective.
The Fund has a fundamental policy that during normal conditions it will at
all times have at least 75% of its total assets invested in common stocks
selected from among those issued by (a) the 300 largest, dividend-paying
companies with headquarters in the United States as measured by the market
value of publicly-traded common stock, or (b) the 300 largest, dividend-paying
companies with headquarters in the United States as measured by revenues. The
Fund's fundamental policies, like its investment objective, cannot be changed
without the approval of the holders of the lesser of (i) 67% or more of the
shares at a meeting, if the holders of a majority of the shares are
represented at the meeting, or (ii) more than 50% of the outstanding shares.
Pursuant to its nonfundamental policies, the Fund remains fully invested
during normal market conditions in approximately 50 common stocks believed by
the Advisor to represent the best values among the companies described above.
The Fund will at all times, during normal market conditions, have at least 90%
of its total assets invested in accordance with the Modern Value Investing(R)
approach, applied consistently with the Fund's fundamental policies. The
Modern Value Investing(R) approach consists of a multi-factor model that
considers discounted dividends, earnings momentum, price momentum and other
factors in order to select approximately 50 stocks. The discounted dividends
factor represents the risk-adjusted expected return of each stock. The
earnings momentum factor includes the rate of change in consensus earnings
estimates for these stocks and deviations in reported earnings from such
estimates. Price momentum measures the risk-adjusted relative performance of
the market value of each stock. The Advisor applies its multi-factor valuation
model at least monthly and more frequently if close monitoring of price
movements, changes in earnings estimates, or other market or portfolio
developments suggest that a stock in the portfolio may no longer meet the
Advisor's investment criteria.
For temporary defensive purposes, the Fund may retain assets in cash and may
invest without limit in short-term debt securities and instruments, which may
include obligations of the United States Government, its agencies or
instrumentalities; commercial paper having, at the time of purchase, a rating
within the highest rating category by an unaffiliated nationally recognized
statistical rating organization (a "NRSRO"), or if not rated, issued by
companies having an outstanding unsecured debt issue currently rated within
one of the two highest rating categories by a NRSRO; certificates of deposit
or bankers' acceptances of domestic branches of U.S. Banks with total assets
at the time of purchase of $1 billion or more; repurchase agreements with
respect to such obligations; or securities issued by other investment
companies which invest in high quality, short-term debt securities and which
seek to maintain a $1.00 net asset value per share. The Fund may also acquire
short-term debt securities and instruments in the course of managing its daily
cash position. During normal market
9
<PAGE>
conditions, however, the Fund will not invest more than 10% of its total
assets in such securities. If securities issued by other investment companies
are acquired, it will be done within the limits prescribed by the 1940 Act. As
a shareholder of another investment company, the Fund would bear, along with
all other shareholders, its pro rata portion of the other investment company's
expenses.
The policies set forth below are fundamental policies of the Fund. The Fund
may not:
1. Purchase securities on margin.
2. Sell securities short.
3. Underwrite the securities of other issuers or invest in restricted
securities.
4. Invest more than 20% of its total assets in any one industry.
5. Purchase or sell real estate or real estate mortgage loans, or invest
in the securities of real estate companies unless such securities are
publicly traded.
6. Purchase or sell commodities, commodity contracts or futures.
7. Lend its portfolio securities in excess of 25% of its total assets,
taken at market value.
8. Make loans to other persons (except as provided in 7 above), provided
that for the purposes of this restriction the acquisition of short-term
debt securities and instruments and repurchase agreements in which the Fund
may invest shall not be deemed to be the making of a loan.
9. Invest in companies for the purpose of exercising control or
management.
10. Invest in the securities of any one issuer (other than the United
States or an agency or instrumentality of the United States) if, at the
time of acquisition, the Fund would own more than 10% of the voting
securities of such issuer or, as to 75% of the Fund's total assets, more
than 5% of such assets would be invested in the securities of such issuer.
11. Purchase or sell any warrants, rights, options or indices.
12. Invest more than 5% of its total assets in repurchase agreements.
13. Invest more than 5% of its total assets, taken at market value, in
securities of issuers (other than the United States or an agency or
instrumentality of the United States) having a record, together with
predecessors, of less than three years of continuous operation.
14. Invest in securities of foreign issuers whose securities are not
traded on the New York or American Stock Exchanges or the NASDAQ-National
Market System.
15. Issue senior securities or borrow money, except for (i) temporary
bank borrowings (not in excess of 5% of the value of its total assets) for
emergency or extraordinary purposes, (ii) such short-term credits (not in
excess of 5% of the value of its total assets) as are necessary for the
clearance of securities transactions, (iii) borrowings from banks and other
financial institutions, in an amount not exceeding 10% of its total assets
and on an unsecured basis, to finance the repurchase of its shares, and
(iv) the borrowing of an amount approximately equal to the underwriting
discount and organizational and offering expenses with respect to its
initial public offering.
16. Purchase portfolio securities from or sell such securities directly
to any of its officers, directors, employees or investment advisor as
principal for their own account.
In its last fiscal year, the Fund did not invest in repurchase agreements
referred to in restriction 12 above, or acquire securities described in
restriction 13 above, and it has no plans to invest in such agreements or
acquire such securities in the current year.
If a percentage restriction is adhered to at the time of investment or
borrowing, a later increase or decrease in percentage resulting from a change
in values of portfolio securities or amount of total assets will not be
considered a violation of any of the foregoing restrictions.
10
<PAGE>
INVESTMENT AND MARKET RISKS
As an investment company that holds common stocks, the Fund's portfolio is
subject to the possibility that common stock prices will decline over short or
even extended periods. The Fund will remain fully invested during periods when
stock prices generally rise and also during periods when they generally
decline. Risks are inherent in equity investing, and investors should be able
to tolerate significant fluctuations in the value of their investments. The
Fund is intended to be a long-term investment vehicle and is not designed to
provide investors with a means of speculating on short-term stock market
movements. Investors should not consider the Fund a complete investment
program. In addition, shares of closed-end investment companies such as the
Fund are not redeemable and frequently trade at a discount from the Fund's
per-share net asset value.
SHARE PRICE DATA
The Fund's Common Stock is publicly held and is listed and traded on the New
York Stock Exchange. The following table sets forth for the periods indicated
the high and low closing sales prices for the shares on the New York Stock
Exchange, the net asset values per share that immediately preceded the high
and low closing sales prices, and the discount or premium that each sales
price represented as a percentage of the preceding net asset value:
<TABLE>
<CAPTION>
PRECEDING NET
ASSET VALUES DISCOUNT (-) OR
HIGH SALES LOW SALES PER SHARE(2) PREMIUM (+)(3)
QUARTER OR OTHER PRICE PRICE ------------- ----------------
PERIOD ENDED PER SHARE(1) PER SHARE(1) HIGH LOW HIGH LOW
---------------- ------------ ------------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
March 31, 1994....... $8.375 $7.625 $ 7.76 $ 7.70 +7.93% -0.97%
June 30, 1994........ 7.75 6.625 7.39 7.25 +4.87% -8.62%
September 30, 1994... 7.125 6.75 7.78 7.63 -10.71% -11.53%
December 31, 1994.... 7.00 6.125 7.61 7.00 -8.02% -12.50%
March 31, 1995....... 6.75 6.125 7.30 7.07 -7.53% -13.37%
June 30, 1995........ 7.25 6.625 8.33 7.73 -12.97% -14.29%
September 30, 1995... 7.875 7.25 8.82 8.52 -8.42% -14.91%
December 31, 1995.... 8.625 7.625 9.43 9.38 -8.54% -18.71%
March 31, 1996....... 8.875 7.75 9.19 8.41 -8.87% -7.85%
June 30, 1996........ 8.50 8.125 9.41 9.07 -9.67% -10.42%
September 30, 1996... 9.25 8.25 9.54 9.41 -3.04% -12.33%
December 31, 1996.... 10.25 9.125 10.29 10.33 -0.39% -11.67%
</TABLE>
- --------
1. As reported on the New York Stock Exchange. During periods in which the
Fund's shares traded at the high or low price for more than one day, the
information is provided with respect to the trading day on which the
discount or premium was greatest.
2. The net asset value per share calculated by the Fund as of the Friday
preceding the date of each high sales price in the first column and each
low sales price in the second column. Thus, this column does not
necessarily show the highest or the lowest net asset value per share during
the period.
3. This column shows the discount or premium that the high and low sales
prices in the first two columns bore to the respective, preceding net asset
values in the third column. It does not necessarily show the highest or
lowest discount or premium during the period.
The Fund was organized in April 1987. Its Common Stock generally traded at a
discount from net asset value per share until the third quarter of 1992. From
the third quarter of 1992 through the first quarter of 1994 the Fund's Common
Stock traded at a slight premium above net asset value per share. Thereafter,
the Fund's Common Stock traded at a discount from net asset value per share.
Since the announcement of a revised distribution policy in August 1996
(described in the next paragraph), the discount has been reduced, and since
mid-January 1997 the Common Stock has on occasion traded at a premium above
net asset vale per share.
Beginning in 1989 and until April 1994 the Fund attempted to reduce the
discount by distributing to stockholders quarterly an amount equal to 2.5%
(10% on an annual basis) of the Fund's net asset value per share, without
regard to net investment income and net capital gains. The Fund believes that
this policy tended to reduce
11
<PAGE>
the discount. In fact, from the third quarter of 1992 through the first
quarter of 1994, the Fund's Common Stock traded at a slight premium to net
asset value. In order to comply with a regulation of the Securities and
Exchange Commission, in April 1994 the Fund modified its distribution policy
from four quarterly distributions of 2.5% of net asset value to three
quarterly distributions of net investment income, followed by a fourth
distribution of an amount equal to the greater of 10% of net asset value less
the prior three distributions, or the sum of the Fund's net investment income
and net capital gains. The result was an aggregate annual distribution of
substantially the same amount, but it was paid in non-level quarterly
distributions. Although the Fund does not know what actual effect the
distribution policy has on the market price, after the Fund modified its
distribution policy in April of 1994, its Common Stock traded at a discount
from its net asset value per share. The Fund has recently received an
exemptive order from the Securities and Exchange Commission allowing the Fund
to make up to four distributions of long-term capital gains in a taxable year
as long as it maintains a policy of distributing a fixed percentage of net
asset value quarterly. This exemptive order allows the Fund to return to its
previous distribution policy. The Fund recently has announced a return to the
Fund's prior policy of distributing 2.5% of the net asset value quarterly to
its stockholders. The first distribution under this policy is expected to be
in April of 1997.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The Board of Directors of the Fund is responsible for the overall management
and operations of the Fund. The Statement of Additional Information contains
information concerning the directors.
INVESTMENT ADVISOR
Denver Investment Advisors LLC serves as the investment advisor to the Fund.
The Advisor's address is 1225 17th Street, 26th Floor, Denver, Colorado 80202.
The Advisor is a limited liability company owned and operated by the principal
officers and employees of Denver Investment Advisors, Inc., which served as
the Fund's investment advisor from its inception until March 31, 1995. As of
June 30, 1996, the Advisor had approximately $10.2 billion under management
(including approximately $984 million for 9 investment company portfolios).
Subject to the general supervision of the Board of Directors, the Advisor
manages the Fund's portfolio, makes decisions with respect to and places
orders for all purchases and sales of the Fund's securities, and maintains
records relating to such purchases and sales. The Fund pays the Advisor a
monthly 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.
PORTFOLIO MANAGER
Varilyn K. Schock, C.F.A., has been primarily responsible for the day-to-day
management of the Fund's portfolio since October, 1991. She has been a Vice-
President of the Fund and a Vice-President and Member of the Advisor since
1995, and prior thereto was a Vice President and Director of Quantitative
Strategies of Denver Investment Advisors, Inc. since 1991.
ADMINISTRATOR
American Data Services, Inc. (the "Administrator") furnishes the Fund with
clerical, accounting, bookkeeping and related services, and computes the net
asset value and net income of the Fund. The Administrator prepares annual and
quarterly returns to the Securities and Exchange Commission, prepares federal
and state tax returns, maintains the Fund's financial accounts and records
(except stockholders' records) and generally assists in all aspects of the
Fund's operations. The Fund pays the Administrator a monthly fee at an annual
rate of .10% of the Fund's average weekly net assets up to $75,000,000, .05%
of the Fund's average weekly net assets between $75,000,000 and $125,000,000,
and .03% of the Fund's average weekly net assets in excess of $125,000,000,
with a $7,463 per month minimum.
12
<PAGE>
CUSTODIAN AND TRANSFER AGENT
Wells Fargo Bank, N.A., 633 17th Street, Denver, Colorado 80202, serves as
the Fund's custodian.
ChaseMellon Shareholder Services, L.L.C., 85 Challenger Road, Overpeck
Centre, Ridgefield Park, NJ 07660, serves as the Fund's Transfer Agent,
Dividend Reinvestment and Cash Purchase Plan Agent, and Subscription Agent for
the Offer.
EXPENSES OF THE FUND
The Fund pays all of its expenses other than those expressly assumed by the
Advisor. The expenses payable by the Fund include: expenses of the Offer,
advisory fees payable to the Advisor and administrative fees payable to the
Administrator; audits by independent public accountants; transfer agent and
registrar, custodian and portfolio record keeping services; dividend
disbursing agent and stockholder record keeping services; taxes and the
preparation of the Fund's tax returns; brokerage fees and commissions;
interest; cost of director and stockholder meetings; printing and mailing
reports to stockholders; fees for filing reports with regulatory bodies and
the maintenance of the Fund's existence; membership dues for investment
company industry trade associations; legal fees; stock exchange listing fees
and expenses; fees to federal and state authorities for the registration of
shares; fees and expenses of directors who are not officers, employees or
members of the Advisor; insurance and fidelity bond premiums; and any
extraordinary expenses.
DISTRIBUTIONS AND TAXES
From 1989 until April 1994 the Fund distributed to stockholders quarterly an
amount equal to 2.5% (10% on an annual basis) of the Fund's net asset value
per share, without regard to net investment income and net capital gains.
Since April 1994 quarterly distributions have been limited to net investment
income, and once a year the Fund supplemented the quarterly distributions with
an annual distribution that brought distributions for the year to the greater
of 10% of the Fund's net asset value per share, or the sum of its net
investment income and net capital gains. The Fund expects that this policy
will be modified beginning in 1997, so that quarterly distributions will again
equal 2.5% (10% on an annual basis) of the Fund's net asset value per share.
See "THE FUND--Share Price Data." To the extent that the Fund's distributions
exceed its net investment income and net capital gains, the Fund liquidates a
portion of its portfolio to fund these distributions, which represent a return
of capital to stockholders and therefore may be deemed to be a reduction of
their principal.
The Fund qualified during its last taxable year as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code") and
intends to continue to so qualify. This qualification relieves the Fund of
liability for federal income taxes to the extent the Fund's earnings are
distributed in accordance with the Code. Qualification as a regulated
investment company under the Code for a taxable year requires, among other
things, that the Fund distribute to its stockholders an amount equal to at
least 90% of its investment company taxable income for such taxable year. In
general, the Fund's investment company taxable income will be its taxable
income, including dividends, interest and the excess, if any, of net short-
term capital gain over net long-term capital loss, subject to certain
adjustments, and excluding the excess, if any, of net long-term capital gain
for the taxable year over net short-term capital loss. The dividends received
deduction for corporations which own shares in the Fund will apply to ordinary
income distributions from the Fund to the extent of such stockholders' ratable
share of the total qualifying dividends received by the Fund from domestic
corporations for the taxable year. It is not expected that the alternative
minimum tax will apply to stockholder dividends and distributions.
Distributions by the Fund are taxable to the stockholders to the extent paid
out of the Fund's current or accumulated earnings and profits, regardless
whether such distributions are received in cash or reinvested in additional
shares of Common Stock. Such distributions constitute ordinary income to the
stockholders except to the extent they are designated as capital gain
dividends, as discussed below. Any distributions by the Fund in excess of its
current and accumulated earnings and profits constitute a nontaxable return of
capital to stockholders
13
<PAGE>
to the extent of each stockholder's tax basis in his or her shares (causing a
reduction of such basis), and thereafter, to the extent of any excess over
such basis, capital gain.
The Fund intends to designate as capital gain dividends any distributions by
the Fund of the excess of net long-term capital gain over net short-term
capital loss. Such capital gain dividends will be taxable to stockholders as
long-term capital gain, regardless of how long the stockholder has held the
Shares and whether such distributions are received in cash or reinvested in
additional shares of Common Stock. Such distributions are not eligible for the
dividends received deduction for corporations.
To the extent that the Fund distributes amounts in a given year that exceed
the Fund's investment company taxable income and excess of net long-term
capital gain over net short-term capital loss (after taking into account
capital loss carryovers), such excess distributions may nonetheless cause
stockholders to recognize taxable income under the federal income tax
principles described above.
Dividends declared in October, November or December of any year payable to
stockholders of record as of a specified date in such months will be deemed to
have been received by stockholders and paid by the Fund on December 31 of such
year if such dividends are actually paid during January of the following year.
Prior to purchasing shares, the impact of distributions which are expected
to be declared or have been declared, but have not been paid, should be
carefully considered. Any such distributions although in effect a return of
capital, are subject to tax as discussed above.
A taxable gain or loss may be recognized by a stockholder upon his or her
sale of shares of the Fund depending upon the tax basis and their price at the
time of sale. Generally, a stockholder may include brokerage costs incurred
upon the purchase and/or sale of Fund shares in his or her tax basis for such
shares for the purpose of determining gain or loss on a sale of such shares.
Stockholders will be advised at least annually as to the federal income tax
consequences of distributions made each year.
The foregoing discussion summarizes some of the important federal tax
considerations generally affecting the Fund and its stockholders who are U.S.
citizens or residents or domestic corporations, and is not intended as a
substitute for careful tax planning. Accordingly, investors in the Fund should
consult their tax advisors with specific reference to their own tax
situations. Stockholders are also advised to consult their tax advisors
concerning state and local taxes, which may differ from the federal income
taxes described above.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
All distributions to stockholders whose shares are registered in their own
names may be reinvested pursuant to the Dividend Reinvestment and Cash
Purchase Plan (the "Plan") in additional shares of the Fund. Stockholders who
choose to hold their shares in the name of a broker or nominee should contact
such broker or nominee to determine whether or how they may participate in the
Plan. There is no service charge for participation in the Plan.
A stockholder may elect to withdraw from the Plan at any time and thereby
elect to receive future dividends in cash in lieu of shares of the Fund. There
will be no penalty for withdrawal from the Plan and stockholders who have
previously withdrawn from the Plan may rejoin it at any time. Changes in
elections must be in writing and should include the stockholder's name and
address as they appear on the share certificate. They should be sent to the
Transfer Agent (referred to in this Section as the "Agent"). An election to
withdraw from the Plan will, until such election is changed, be deemed to be
an election by a stockholder to take all subsequent distributions in cash.
Elections will only be effective for subsequent distributions with a record
date of at least fifteen (15) days after such elections are received by the
Agent.
14
<PAGE>
Funds credited to a participant's account will be used to purchase shares of
the Fund's Common Stock (the "Purchase"). The Agent will attempt, commencing
on the first trading day and ending on the tenth trading day following the
record date, to acquire shares in the open market at a price, plus commission,
which is less than the net asset value per share most recently published by
the Fund prior to any purchase (the "Net Asset Value"). If and to the extent
that the Agent is unable to acquire sufficient shares of the Fund's Common
Stock at a price plus commission less than the Net Asset Value, the Fund will
issue to the Agent shares of the Fund's Common Stock, valued at the Net Asset
Value, in the aggregate amount of the remaining value of the distribution.
The reinvestment of dividends and distributions will not relieve
participants of any income taxes that may be payable (or required to be
withheld) on dividends or distributions. See "DISTRIBUTIONS AND TAXES."
Stockholders participating in the Plan may receive benefits not available to
stockholders not participating in the Plan. If the market price plus
commissions of the Fund's shares is above the net asset value, participants in
the Plan will receive shares of the Fund at net asset value, which is less
than they could otherwise purchase them in the open market and will have
shares with a market value greater than the value of any cash distribution
they would have received. There can be no assurance that the market price of
the Fund's shares of common stock will exceed their net asset value.
The Fund will increase the price at which its shares may be issued to the
Plan if the net asset value of the shares is less than 95% of the fair market
value of such shares on the payment date of any distribution of net investment
income or net capital gain, unless the Fund receives a legal opinion from
independent counsel that the issuance of shares at net asset value under these
circumstances will not have a material effect upon the federal income tax
liability of the Fund.
A participant may from time to time make voluntary cash contributions to his
or her account by sending to the Agent a check or money order payable to the
Agent in an amount not less than $50 and not in excess of $10,000 per month to
acquire additional shares of the Fund. In the case of any voluntary cash
contribution which exceeds $10,000 per month, the excess will be returned to
the participant by the Agent. All cash contributions to a participant's
account made pursuant to this paragraph will be invested in shares of the
Fund's Common Stock purchased in the open market (irrespective of net asset
value). The Agent will invest all voluntary cash contributions on or about the
last business day of the month, provided it receives the contributions at
least two business days before the last business day of the month (the "Cut-
off date"). Because interest is not paid on voluntary cash contributions,
participants should make such contributions shortly before the Cut-off Date,
allowing sufficient time for mail delivery. Voluntary cash contributions
received after the Cut-off Date will be used to acquire additional shares of
the Fund on or about the last business day of the following month. Following
any monthly investment of voluntary cash contributions, the Agent will send
each investing participant a confirmation of such investment. Voluntary cash
contributions will be returned to the participant upon written request,
provided that such request is received more than two days before the Cut-off
Date.
The Fund reserves the right to amend the Plan.
Additional information about the Plan may be obtained from the Agent. See
"MANAGEMENT OF THE FUND--Custodian and Transfer Agent."
15
<PAGE>
CAPITAL STOCK
DIVIDENDS, VOTING AND LIQUIDATION RIGHTS
The Fund has one class of shares of Common Stock, par value $.01 per share,
of which 100,000,000 shares are authorized. When issued, shares of Common
Stock are fully paid and non-assessable. The Fund's shares have no pre-
emptive, conversion, exchange or redemption rights. Each share of the Fund's
Common Stock has one vote and shares equally in dividends and distributions
when and if declared by the Fund and in the Fund's net assets upon
liquidation. All voting rights for the election of directors are non-
cumulative. Consequently, the holders of more than 50% of the shares can elect
100% of the directors then nominated for election if they choose to do so and,
in such event, the holders of the remaining shares will not be able to elect
any directors.
ANTI-TAKEOVER PROVISIONS IN THE ARTICLES OF INCORPORATION
The Fund's Articles of Incorporation and By-Laws include provisions that are
intended to have the effect of limiting the ability of other entities or
persons to acquire control of the Fund or to change the composition of its
Board of Directors and could have the effect of depriving stockholders of an
opportunity to sell their shares at a premium over prevailing market prices by
discouraging a third party from seeking to obtain control of the Fund. The
Board of Directors is divided into three classes, each having a term of three
years. The term of one class expires at each annual meeting of stockholders.
This provision could delay for up to two years the replacement of a majority
of the Board of Directors. The votes of the holders of a majority of the
outstanding shares is required to elect a director. A director may be removed
from office only by vote of the holders of at least 75% of the shares of the
Fund entitled to be voted on the matter.
The Articles of Incorporation also require the favorable vote of the holders
of at least 75% of the shares of the Fund then entitled to be voted to
approve, adopt or authorize the following:
(i) a merger or consolidation of the Fund with another corporation,
(ii) a sale or transfer of all or substantially all of the Fund's assets
(other than in the regular course of the Fund's investment activities),
(iii) a liquidation or dissolution of the Fund, or
(iv) a change in the nature of the Fund's business so as to cease to be
an investment company,
unless such action has been approved, adopted or authorized by the affirmative
vote of 75% of the total number of directors fixed in accordance with the
bylaws, in which case the affirmative vote of a majority of the outstanding
shares is required.
In addition, the Articles of Incorporation provide that these anti-takeover
provisions may only be changed by the favorable votes of the holders of at
least 75% of the shares of the Fund then entitled to be voted. The Board of
Directors has determined that the 75% voting requirements, which are greater
than the minimum requirements under Maryland law or the 1940 Act, are in the
best interests of stockholders generally.
OUTSTANDING SECURITIES
Set forth below is information with respect to the Fund's outstanding
securities as of January 24, 1997:
<TABLE>
<CAPTION>
(3) (4)
(2) AMOUNT HELD BY AMOUNT OUTSTANDING
(1) AMOUNT REGISTRANT OR FOR EXCLUSIVE OF AMOUNT
TITLE OF CLASS AUTHORIZED ITS ACCOUNT SHOWN UNDER(3)
-------------- ----------- ----------------- -------------------
<S> <C> <C> <C>
Common Stock, par value
$0.01 per share............ 100,000,000 0 11,310,287
</TABLE>
16
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Additional information about the Fund is contained in a Statement of
Additional Information, which is available upon request without charge by
contacting the Fund. Set forth below is the Table of Contents of the Statement
of Additional Information:
TABLE OF CONTENTS
Investment Objectives and Policies
Management
Control Persons and Principal Holders of Securities
Investment Advisory and Other Services
Brokerage Allocation and Other Practices
Tax Status
Financial Statements
17
<PAGE>
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATION NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR THE ADVISOR. THE PROSPECTUS DOES
NOT CONSTITUTE AN OFFERING BY THE FUND IN ANY JURISDICTION IN WHICH SUCH OF-
FERING MAY NOT BE LAWFULLY MADE.
---------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Fee Table................................................................... 2
Financial Highlights........................................................ 3
The Offer................................................................... 5
Use of Proceeds............................................................. 9
The Fund.................................................................... 9
Management of the Fund...................................................... 12
Distributions and Taxes..................................................... 13
Dividend Reinvestment and Cash Purchase Plan................................ 14
Capital Stock............................................................... 16
Statement of Additional Information......................................... 17
</TABLE>
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- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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2,275,000 SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF RIGHTS TO SUBSCRIBE
FOR SUCH SHARES OF COMMON STOCK
BLUE CHIP VALUE FUND, INC.
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PROSPECTUS
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JANUARY 31, 1997
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<PAGE>
BLUE CHIP VALUE FUND, INC.
PART B
STATEMENT OF ADDITIONAL INFORMATION
January 31, 1997
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
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<S> <C>
Investment Objectives and Policies................... 2
Management........................................... 3
Control Persons and Principal Holders of Securities.. 6
Investment Advisory and Other Services............... 6
Brokerage Allocation and Other Practices............. 8
Tax Status........................................... 9
Financial Statements................................. 11
</TABLE>
This Statement of Additional Information applies to the Blue Chip Value
Fund, Inc. (the "Fund"). This Statement of Additional Information is not a
prospectus, and is meant to be read in conjunction with the Prospectus dated
January 31, 1997 (the "Prospectus"), which describes the Fund. This Statement
of Additional Information is incorporated by reference in its entirety into the
Prospectus. Copies of the Prospectus may be obtained by calling the Fund, at
(800) 624-4190. Capitalized terms used but not defined herein have the same
meaning as in the Prospectus.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Prospectus for the Fund describes the investment objectives and
policies of the Fund. In addition to the non-fundamental policies listed in the
Prospectus, the following investment policy of the Fund is not deemed
fundamental and may be changed without stockholder approval.
Although it has not done so, the Fund is permitted, from time to time, to
lend its portfolio securities with an aggregate value not in excess of 25% of
total net assets to brokers, dealers, and financial institutions such as banks
and trust companies, for which it will receive collateral in cash or United
States Government securities that will be maintained on a daily basis in an
amount equal to at least 100% of the current market value of the loaned
securities. The Fund would not pay administrative, finders, or other fees in
connection therewith. The Fund would continue to receive dividends on the
securities loaned. Cash collateral would be invested in short-term debt
securities, which would increase the current income of the Fund. Although
voting rights, or rights to consent, attendant to securities on loan pass to the
borrower, such loans may be called at any time and will be called so that the
securities may be voted if a material event affecting the investment occurs.
During the fiscal year ended December 1996 the Fund did not lend any portfolio
securities. The Fund does not currently intend to engage in securities lending
so as to put more than 5% of its net assets at risk.
Portfolio Turnover
The portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the year by the monthly average
value of the portfolio securities. The calculation excludes all securities
whose maturities at the time of acquisition were one year or less. Portfolio
turnover may vary greatly from year to year as well as within a particular year,
and may also be affected by requirements which enable the Fund to receive
certain favorable tax treatment. Portfolio turnover will not be a limiting
factor in making portfolio decisions. For the fiscal years ended December 31,
1994, 1995 and 1996, the Fund's portfolio turnover rates were 62.77%, 50.84% and
42.31%, respectively.
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MANAGEMENT
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Positions Held Principal Occupation(s)
Name and Address Age with the Fund During Past 5 Years
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*Kenneth V. Penland, 53 Chairman of Chairman and Executive
C.F.A. the Board Manager, Denver
1225 Seventeenth Street and Director Investment Advisors LLC
26th Floor (since 1995); prior
Denver, Colorado 80202 thereto Chairman of the
Board and Director of
Research, Denver
Investment Advisors, Inc.
Robert J. Greenebaum 79 Director Independent Consultant;
Room 957 Chairman of the Board
111 W. Washington Street and Director, Selected
Chicago, Illinois 60602 American Shares, Inc.
and Selected Special
Shares, Inc., Santa Fe,
New Mexico; Director,
United Asset Management
Corp., Boston, Massachusetts;
Chairman of the Board and
Trustee, Selected Capital
Preservation Trust, Santa Fe,
New Mexico. Consultant,
Denver Investment Advisors
LLC, and its predecessor,
Denver Investment Advisors, Inc.
Robert M. Inman 56 Director Real Estate Investment Advisor
2847 South Locust Street and Consultant (since 1988)
Denver, Colorado 80222 (real estate development and
construction); Director, First
National Bank of Parker, N.A.,
Parker, Colorado.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address Age with the Fund During Past 5 Years
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<S> <C> <C> <C>
Richard C. Schulte 51 Director President, Transportation
1860 Lincoln Street Service Systems, Inc.;
12th Floor Employee, Southern Pacific
Denver, Colorado 80295 Lines, Denver, Colorado
(since 1993); prior thereto,
Employee, Rio Grande
Industries, Denver, Colorado
(holding company) (since 1991)
Vice President Finance
and Treasurer, Rio Grande
Holdings, Inc., Denver,
Colorado (since 1990); and
Vice President, Denver & Rio
Grande Western Railroad Company,
Denver, Colorado.
Roberta M. Wilson, 52 Director Director of Finance, Denver
C.F.A. Board of Water Commissioners,
1600 W. Twelfth Avenue Denver, Colorado.
Denver, Colorado 80254
Charles H. Anderson, 51 President President and Executive
C.F.A. Manager, Denver Investment
1225 Seventeenth Street Advisors LLC (since 1995);
26th Floor prior thereto President and
Denver, Colorado 80202 Director of Portfolio Management,
Denver Investment Advisors, Inc.;
former director of the Fund.
John R. Cormey, 48 Vice President Vice President and Member, Denver
C.F.A. Investment Advisors LLC (since
1225 Seventeenth Street 1995); prior thereto Vice
26th Floor President and Director of
Denver, Colorado 80202 Fixed Income, Denver Investment
Advisors, Inc., Denver, Colorado
(since 1991).
Varilyn K. Schock, 34 Vice President Vice President and Member,
C.F.A. Denver Investment Advisors LLC
1225 Seventeenth Street (since 1995); prior thereto
26th Floor Vice President and Director of
Denver, Colorado 80202 Quantitative Strategies, Denver
Investment Advisors, Inc.
(since 1991).
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address Age with the Fund During Past 5 Years
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<S> <C> <C> <C>
W. Bruce McConnel, III 53 Secretary Partner of the law firm of
Philadelphia National Drinker Biddle & Reath,
Bank Building Philadelphia, PA
1345 Chestnut Street
Philadelphia, PA 19107
Steven G. Wine, 32 Treasurer Employee, Denver Investment
1225 Seventeenth Street Advisors LLC (since 1995);
26th Floor prior thereto Portfolio
Denver, Colorado 80202 Accounting Analyst, Denver
Investment Advisors, Inc.
(since 1988).
</TABLE>
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* Mr. Penland is considered by the Fund to be an "interested person" of the Fund
(as defined in the Investment Company Act of 1940).
No director or officer of the Fund who is also a director, officer, or
employee of the investment adviser or any of its parents, received any
remuneration from the Fund during 1996. The other directors taken as a group
were either paid or had accrued directors' fees for 1996 from the Fund in the
aggregate amount of $32,029. Drinker Biddle & Reath, of which W. Bruce
McConnel, III, Secretary of the Fund, is a partner, receives fees from the Fund
for services rendered as its legal counsel.
In 1996 the directors received an annual retainer of $4,000 for serving as
directors, plus a meeting fee of $1,000 for each regular Board meeting attended.
The Fund expects the basis of such compensation will be the same during 1997.
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, 1996:
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<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
Total
Aggregate Compensation
Compensation From Fund
Name of Person From Fund Paid To Directors
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<S> <C> <C>
Robert J. Greenebaum $8,000 $8,000
Robert M. Inman $8,000 $8,000
Kenneth V. Penland $ -0- $ -0-
Richard C. Schulte $8,000 $8,000
Roberta M. Wilson $8,000 $8,000
</TABLE>
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The Fund has a standing Audit Committee of the Board composed of Messrs.
Inman, Greenebaum 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, 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 Committee by the Board of Directors.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of the date of this Statement of Additional Information, there were no
"Control Persons" as that term is defined in the Investment Company Act of 1940
(the "1940 Act").
As of December 10, 1996, Cede & Co. (as nominee for the Depository Trust
Company), 55 Water Street, New York, New York 10041, held of record 7,599,045
shares of the outstanding securities of the Fund.
As of the date of this Statement of Additional Information, the directors
and officers as a group owned 1.3% of the common stock of the Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
Investment Advisor
Denver Investment Advisors LLC (the "Advisor") serves as investment
advisor for the Fund and is located at 1225 Seventeenth Street, 26th Floor,
Denver, Colorado 80202. Until March 31, 1995, Denver Investment Advisors, Inc.
("DIA, Inc.") served as investment advisor for the Fund. On March 31, 1995,
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<PAGE>
the Advisor purchased certain of the assets and assumed certain of the
liabilities and obligations of DIA, Inc., and the principal officers and all of
the employees of DIA, Inc. became employed by the Advisor. This transaction
caused the Fund's previous investment advisory agreement with DIA, Inc. to
terminate automatically under the 1940 Act. The current investment advisory
agreement was approved by the stockholders at a special meeting held on
February 8, 1995. The current investment advisory agreement is substantially the
same as the Fund's previous investment advisory agreement.
Kenneth V. Penland, Chairman and a director of the Fund, is an officer and
executive manager of the Advisor. Charles H. Anderson, President of the Fund,
is an officer and executive manager of the Advisor. John R. Cormey and
Varilyn K. Schock, both Vice Presidents of the Fund, are Vice Presidents and
members of the Advisor. Steven G. Wine, Treasurer of the Fund, is an employee of
the Advisor.
For the fiscal years ended December 31, 1996, 1995 and 1994, the Fund paid
the Advisor (and its predecessor DIA, Inc.) $661,385, $587,436 and $542,350,
respectively, for investment advisory services.
The Investment Advisory Agreement dated April 1, 1995 between the Fund and
the Advisor (the "Agreement") provides that the advisory fee shall be reduced as
required by expense limitations imposed upon the Fund by any state in which
shares of the Fund are sold. The Fund is not presently subject to any such
expense limitations.
In the Agreement, the Advisor 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 Agreement also requires the Advisor 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 semiannual 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 Agreement provides that the Advisor 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
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<PAGE>
agreement, except a loss resulting from a breach of 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 the Advisor in the
performance of its duties or from reckless disregard of its obligations and
duties under the Agreement.
Administrator
For the fiscal years ended December 31, 1996, 1995 and 1994, the Fund paid
American Data Services, Inc., the Fund's Administrator $94,643, $94,708 and
$95,799, respectively, for administrative services.
Custodian
The custodian of the Fund's portfolio securities is Wells Fargo Bank,
N.A., located at 633 Seventeenth Street, Denver, Colorado 80202. Pursuant to
the Custody Agreement between the Fund and Wells Fargo Bank, Wells Fargo
provides the following services: (i) maintains a separate account or accounts
in the name of the Fund; (ii) holds and disburses portfolio securities on
account of the Fund; (iii) collects and makes disbursements of money on behalf
of the Registrant; (iv) collects and receives all income and other payments and
distributions on account of the Fund's portfolio; (v) furnishes monthly to the
Fund a detailed statement of property held for the Fund under the Custody
agreement; (vi) maintains appropriate books and records for the Fund with
respect to its duties under the Custody Agreement and (vii) makes periodic
reports to the Fund concerning the Registrant's operations.
Independent Auditors
Ernst & Young LLP, 370 Seventeenth Street, Suite 4300, Denver, Colorado
80202, serves as the Fund's independent auditors, providing audit services
including (1) audit of the annual financial statements, (2) assistance and
consultation in connection with SEC filings, and (3) review of the income tax
returns filed on behalf of the Fund.
BROKERAGE ALLOCATION AND OTHER PRACTICES
Brokers are selected by the Advisor on the basis of best price and
execution for the Fund. In assessing best price and execution available to the
Fund, the Advisor will consider all factors it deems relevant, including the
breadth, of the market in the security, the price of the security, the financial
condition and execution capability of the broker/dealer, and the reasonableness
of the commission, if any, for the specific transaction and on a continuing
basis. In selecting brokers or dealers to execute particular transactions and
in evaluating best
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<PAGE>
net price and execution available, the Advisor is authorized to consider
"brokerage and research services" (as defined in section 28(e) of the Securities
Exchange Act of 1934), statistical quotations, including the quotations
necessary to determine the Fund's net asset value, and other information
provided to the Fund and/or the Advisor or its affiliates. The Advisor is
authorized to cause the Fund to pay to brokers or dealers who provide such
brokerage and research services brokerage commissions which may be in excess of
the amount that another broker or dealer would have charged for effecting the
same transactions if the Advisor determines in good faith that such amount of
commissions is reasonable in relation to the value of brokerage and research
services provided by such brokers or dealers, viewed in terms of the particular
transaction or in terms of all of the accounts over which the Advisor exercises
investment discretion.
Research material furnished by brokers without cost to the Advisor, if
any, may tend to benefit Fund and other clients of the Advisor by improving the
quality of advice given; not all such research material furnished may be used by
the Advisor in connection with the Fund.
During the fiscal years ended December 31, 1996, 1995 and 1994, the Fund
paid brokerage commissions of $105,430, $76,627 and $143,071, respectively.
TAX STATUS
Federal
The Fund will be treated as a separate corporate entity under the Internal
Revenue Code of 1986, as amended (the "Code"), and intends to qualify as a
"regulated investment company." By following this policy, the Fund expects to
eliminate or reduce to a nominal amount the federal income taxes to which it may
be subject. If for any taxable year the Fund does not qualify for the special
federal tax treatment afforded regulated investment companies, all of the Fund's
taxable income would be subject to tax at regular corporate rates (without any
deduction for distributions to stockholders). In such event, the Fund's
dividend distributions to stockholders would be taxable as ordinary income to
the extent of the current and accumulated earnings and profits of the Fund and
would be eligible for the dividends received deduction in the case of corporate
stockholders.
Qualification as a regulated investment company under the Code requires,
among other things, that the Fund distribute to its stockholders an amount equal
to at least the sum of 90% of its investment company taxable income (if any) and
90% of its
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<PAGE>
tax-exempt income (if any), net of certain deductions for each taxable year. In
general, the Fund's investment company taxable income will be its taxable
income, including dividends, interest, and short-term capital gains (the excess
of net short-term capital gain over net long-term capital loss), subject to
certain adjustments and excluding the excess of net long-term capital gain, if
any, for the taxable year over the net short-term capital loss (if any), for
such year. The Fund will be taxed on its undistributed investment company
taxable income, if any. As stated, the Fund intends to distribute at least 90%
of its investment company taxable income (if any) for each taxable year. To the
extent such income is distributed by the Fund (whether in cash or additional
shares), it will be taxable to stockholders as ordinary income.
The Fund will not be treated as a regulated investment company under the
Code if 30% or more of the Fund's gross income for a taxable year is derived
from gains realized on the sale or other disposition of the following
investments held for less than three months (the "Short-Short test"): (1) stock
and securities (as defined in section 2(a)(36) of the 1940 Act); (2) options,
futures and forward contracts other than those on foreign currencies; and (3)
foreign currencies (and options, futures and forward contracts on foreign
currencies) that are not directly related to the Fund's principal business of
investing in stock and securities (and options and futures with respect to
stocks and securities). Interest (including original issue discount and accrued
market discount) received by the Fund upon maturity or disposition of a security
held for less than three months will not be treated as gross income derived from
the sale or other disposition of such security within the meaning of this
requirement. However, any other income that is attributable to realized market
appreciation will be treated as gross income from the sale or other disposition
of securities for this purpose.
Any distribution of the excess of net long-term capital gains over net
short-term capital losses is taxable to stockholders as long-term capital gains,
regardless of how long the stockholder has held Fund shares and whether such
gains are received in cash or additional Fund shares. The Fund will designate
such a distribution as a capital gain dividend in a written notice mailed to
stockholders after the close of the Fund's taxable year. It should be noted
that, upon the sale of Fund shares, if the stockholder has not held such shares
for more than six months, any loss on the sale of those shares will be treated
as long-term capital loss to the extent of the capital gain dividends received
with respect to the shares.
Ordinary income of individuals is taxable at a maximum marginal rate of
39.6%, but because of limitations on itemized deductions otherwise allowable and
the phase-out of personal exemptions, the maximum effective marginal rate of tax
for some
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<PAGE>
taxpayers may be higher. An individual's long-term capital gains are taxable at
a maximum nominal rate of 28%. For corporations, long-term capital gains and
ordinary income are both taxable at a maximum nominal rate of 35%.
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute specific percentages of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses). The Fund intends to make sufficient distributions or
deemed distributions of its ordinary taxable income and any capital gain net
income prior to the end of each calendar year to avoid liability for this excise
tax.
The Fund will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable dividends or 31% of gross sale proceeds
upon sale paid to stockholders (i) who have failed to provide a correct tax
identification number in the manner required, (ii) who are subject to
withholding by the Internal Revenue Service for failure to properly include on
their return payments of taxable interest or dividends or (iii) who have failed
to certify to the Fund either that they are subject to backup withholding when
required to do so or that they are "exempt recipients."
State
Depending upon the extent of activities in states and localities in which
its offices are maintained, in which its agents or independent contractors are
located or in which it is otherwise deemed to be conducting business, the Fund
may be subject to the tax laws of such states or localities.
Income distributions may be taxable to stockholders under state or local
law as dividend income even though all or a portion of such distributions may be
derived from interest on U.S. government obligations which, if realized
directly, would be exempt from such income taxes. Stockholders are advised to
consult their tax advisers concerning the application of state and local taxes.
FINANCIAL STATEMENTS
Stockholders receive unaudited semi-annual reports describing the Fund's
investment operations and annual financial statements together with the report
of the independent auditors of the Fund. The unaudited financial statements and
notes thereto for the Fund contained in its Semi-Annual Report to Stockholders
dated June 30, 1996 and the audited financial statements and notes thereto for
the Fund contained in its Annual Report to Stockholders dated December 31, 1995,
are incorporated
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<PAGE>
by reference into this Statement of Additional Information. No other parts of
the Semi-Annual Report or the Annual Report are incorporated by reference
herein. The financial statements and related notes thereto for the Fund which
appear in the Fund's Annual Report to Stockholders have been audited by Ernst &
Young LLP, whose report thereon also appears in such Annual Report and is also
incorporated herein by reference. Such audited financial statements and notes
thereto have been incorporated herein in reliance upon such report of Ernst &
Young LLP, independent auditors, given upon the authority of said firm as
experts in accounting and auditing. Additional copies of the Semi-Annual Report
and Annual Report may be obtained at no charge by telephoning the Fund at
(800) 624-4190.
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