PREFERRED INCOME MANAGEMENT FUND INC, PRES14A, 1999-07-02

PREFERRED INCOME MANAGEMENT FUND INC
PRES14A, 1999-07-02

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SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934

Filed by Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:

[X] Preliminary Proxy Statement

[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))

[ ] Definitive Proxy Statement

[ ] Definitive Additional Materials

[ ] Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec.
240.14a-12

PREFERRED INCOME MANAGEMENT FUND INCORPORATED
(Name of Registrant as Specified In Its Charter)

ROSE F. DIMARTINO
(Name of Person(s) Filing Proxy Statement)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-
6(i)(4) and 0-11.

1) Title of each class of securities to which transactions applies:

2) Aggregate number of securities to which transaction applies:

3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):

4) Proposed maximum aggregate value of transaction:

5) Total fee paid:

[ ] Fee paid previously with preliminary materials.

<PAGE>

[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identity the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:

<PAGE>

PREFERRED INCOME MANAGEMENT FUND INCORPORATED

QUESTIONS AND ANSWERS

WHAT IS CHANGING IN THE FUND?

The Fund is proposing to move in a new direction--changing its investment
advisers, its investment objective and certain investment policies and its name.

HOW DOES THE BOARD RECOMMEND I VOTE?

Your Board of Directors unanimously recommends that you vote in favor of
each proposal.

WHAT IS THE FUND'S PROPOSED NEW OBJECTIVE?

Total return.

WHAT DOES THE PROPOSED CHANGE IN OBJECTIVE MEAN FOR THE FUND?

By changing the objective to total return, the Fund will be able to broaden
its range of investments, having the ability to invest more of its assets in
common stocks. The Board believes that increasing the portion of the Fund's
assets invested in common stocks could result in higher after tax returns to
shareholders over the long term than continuing to focus exclusively on income
derived from preferred stocks. Historically, common stocks have outperformed
fixed income investments in all but a few years. By owning common stocks of
quality companies, holders have the potential to participate in the profits of
the companies, while owners of preferred stocks are limited to the dividend
payments the companies have indicated; thus, their upside potential is limited.
Preferred stocks provide a good source of steady income, however, and the Fund
will continue to invest in preferred stocks. The allocation of the Fund's
investments between common stocks and fixed income securities, including
preferred stocks, will vary over time, and there is no minimum or maximum
percentage of assets that will be committed to either type of investment.

WHO ARE THE FUND'S PROPOSED NEW INVESTMENT ADVISERS?

Boulder Investment Advisers, L.L.C. will be the Fund's primary investment
adviser; Spectrum Asset Management, Inc. will be the Fund's sub-adviser for the
portion of the Fund invested in preferred stocks and Stewart Investment
Advisers, Ltd. ("SIA") will be the Fund's sub-adviser for the portion of the
Fund invested in common stocks and cash equivalents. Both Boulder Investment
Advisers, L.L.C. and Stewart Investment Advisers, Ltd. are controlled by Stewart
R. Horejsi or his family interests (the "Horejsi Group"). The Horejsi Group owns
41.89% of the Fund's outstanding common stock.

<PAGE>

WHAT INVESTMENT EXPERIENCE DOES MR. HOREJSI HAVE?

Mr. Horejsi has managed his family's trusts for over 20 years. He is a
long-term investor in Berkshire Hathaway and he agrees with Warren Buffet's
methodology of value investing for the long term. For example, the investment
criteria he plans to follow in selecting common stocks includes targeting
companies that have consistently returned more than 13% per year, that primarily
use their retained earnings to support the growth of their core business,
businesses that are understandable and that have predictable and improving
earnings, businesses that have exceptional management teams and have a limited
and wise use of debt, and that the stocks of these businesses are priced
reasonably relative to anticipated earnings and growth.

WILL THE FUND'S EXPENSES BE AFFECTED?

Yes. The Fund's expenses will gradually increase over time as the Fund
becomes more invested in common stocks. In the proposal, BIA would be paid an
investment advisory fee of 1.0%, or 100 basis points, on the Fund's total
average net assets. However, BIA will waive 0.40 of 1.0%, or 40 basis points, of
its fee and Spectrum's fee would come out of the remaining 60 basis points. This
would be the advisory fee arrangement until the Fund has invested 50% or more of
its assets in common stocks and cash held for investment in common stocks. Once
the Fund is 50% or more invested this way, the total advisory fee will be 1.0%
of the Fund's total average net assets, from which all advisory fees will be
paid, i.e., BIA, SIA and Spectrum. To give you an example, under the proposal,
if the Fund were invested 25% in common stocks, and 75% in preferreds, the total
advisory fee paid by the Fund would be 70 basis points on an annualized basis.
This is about 9 basis points higher than what the ongoing advisory fee was in
1998. If the allocation went to 35% in common stocks and 65% in preferreds, the
annualized advisory fee would be 74 basis points. When the Fund is 50% or more
invested in common stocks the total advisory fees paid will be 100 basis points,
which is about 39 basis points higher than the ongoing advisory fees paid in
1998.

WILL MY DIVIDEND BE AFFECTED?

Yes, but gradually over time. At some point as the Fund invests a greater
proportion of assets in common stocks that either pay a lower dividend than
preferred stocks or don't pay any dividend at all, the Fund will reduce the
dividend paid to common stockholders to reflect the actual amount of income
being received. However, even though a common stockholder may receive less
dividend income, investments in common stocks will be made only when the
expectation is that the value of the stock will ultimately appreciate at a
higher rate than the dividends rate then being paid by preferred stocks.

WILL THE FUND REMAIN LEVERAGED?

Yes. The Fund currently has $77.5 million of Money Market Cumulative
Preferred Stock ("MMP(R)") outstanding, and intends to continue to use this as
leverage as long as it provides an advantage to the Fund's common shareholders.

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<PAGE>

IN WHAT TYPES OF COMMON STOCKS WILL THE FUND INVEST?

The Fund will focus its common stock investments primarily on U.S.
companies, although the adviser won't shut the door on possible investment
opportunities outside the United States. Generally, target companies should have
consistently returned more than 13% on equity, while using modest amounts of
debt relative to their industry. In addition, the companies should be in
businesses SIA understands and have fairly predictable and improving future
earnings, and most importantly, they should be priced reasonably relative to the
company's earnings and anticipated growth in earnings. The Fund won't
necessarily be a "large-cap" or "mid-cap" or "anything-cap" fund since SIA
believes it would be unwise to restrict investments in any particular size
company--small companies have the same opportunity to make profits as big ones.
When the Fund makes an investment in a common stock, the Fund will likely hold
onto it for a long time. There are two reasons for this. When investing for
value, a good investor will patiently hold a company to allow it to do what it's
supposed to do -- earn money and grow. And the longer a shareholder holds an
investment without selling, the longer the shareholder defers paying taxes on
any gains. The Fund literally won't invest in anything SIA wouldn't buy for
itself, since the Horejsi Group owns 41.89% of the Fund's common shares. These
investment criteria will preclude the Fund from investing in some of the
market's latest high flyers. But in the long run, SIA thinks that value-type
investing will produce the best overall total return.

WHEN WILL THESE CHANGES TAKE PLACE?

If shareholders approve the proposed changes in investment objective and
investment advisers, these changes would become effective immediately after the
special shareholders meeting. At that time, SIA would have the authority to
invest in common stocks. However, with the stock market at all time highs, it is
unlikely the Fund will be more than 40% invested in common stocks by year-end.
That's not to say it won't be. It may. It really depends on the market and what
opportunities are found. In other words, with regards to asset allocation
between common stocks and preferred stocks and bonds, the Fund cannot predict
what the weightings of common stocks and fixed income investments will be by
year-end, or at any other point in time. The Board believes that going slowly
will be in the shareholders' long-term best interests.

WHAT OTHER MATTERS ARE BEING VOTED ON?

The Board is recommending that three investment policies be changed and one
eliminated, which are expected to give the Fund greater investment flexibility.

ARE ANY ASPECTS OF THE FUND'S MMP(R) BEING CHANGED?

No. On some matters being voted on, the MMP(R) will vote as a separate
class.

WHO SHOULD I CALL IF I HAVE QUESTIONS?

You should direct your questions to Shareholder Communications Corporation,
who has been retained to assist with the proxy solicitation. They can be
contacted at 1-800-___-____.

-3-
<PAGE>

[Fund Letterhead]

Dear Shareholder,

We are asking you to approve several significant, and we believe, positive
changes to the Preferred Income Management Fund. The enclosed Notice of Special
Meeting of Shareholders of the Preferred Income Management Fund outlines all of
the items to be voted upon. The proxy statement gives details about each
proposal and should be carefully read and considered before voting.

First, and most important, is changing the objective of the Fund from
income to total return. By making this change, the Fund will be able to make
significant investments in common stocks, which we believe will result in better
overall returns over the years than fixed income securities alone. We will
continue to have investments in preferred stocks, but they will no longer be the
primary focus of the Fund.

Second, the Fund will have new advisers. Boulder Investment Advisers,
L.L.C. ("BIA") will be the Fund's investment adviser. Stewart Investment
Advisers, Ltd. will be the Fund's sub-adviser concentrating primarily on asset
allocation and common stock investments, and Spectrum Asset Management, Inc.
will be the Fund's sub-adviser concentrating primarily on the hedged preferred
stock portion of the Fund.

Finally, there are several fundamental investment policies which we are
asking to be amended in order to better align the Fund's investing policies with
its new objective. In addition, with the change in objective, we will be
changing the name of the Fund to Boulder Total Return Fund, Inc.

Following this letter is a letter from Stewart R. Horejsi setting forth an
overview of where the Fund is headed. Mr. Horejsi's family interests control 42%
of the Fund's common stock.

Your vote is important. PLEASE TAKE A MOMENT NOW TO VOTE BY COMPLETING AND
RETURNING YOUR PROXY CARD IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE.

Sincerely,

Stephen Miller, President

<PAGE>

Letter from Stewart R. Horejsi

June 9, 1999

Dear Shareholder:

As a fellow shareholder, a Director of the Fund, and principal of one of
the Fund's proposed sub-advisers, I would like to provide shareholders with an
overview of what they should expect with respect to the Fund and the changes
contemplated in the accompanying special proxy.

First, we caution shareholders not to expect too much too soon. We intend
to be patient investors. We want the Fund to own companies with long track
records of proven success. Because such companies are usually well known and are
currently priced at historically high levels relative to their intrinsic value,
we may not find many prospects at attractive prices in the near-term. Thus, most
of the Fund's assets will remain in fixed income until we identify attractive
'price to value' ratios in companies we understand and feel sure about. When
price to value ratios fluctuate, it is often the result of a temporary change in
how the public and general market perceive the company, and not necessarily a
function of the company's long-term economic fundamentals. Sometimes the market
acts silly. And when it does, you can take advantage of it, as long as you don't
act silly as well. When the Fund buys at lower ratios, it may take years before
the market recognizes value in a particular security. But remember, we're
patient investors. It could take 3 to 4 years, or sometimes longer, before true
value will be reflected in the price of the stock, but we will continue to hold
securities as long as we continue to see value. Consequently, we discourage
anyone from buying the Fund if they expect big returns in less than 5 years. We
need time to find good values at reasonable prices, and for the market to
recognize these values again after the cause for the unfavorable perception has
passed. Of course, the key here is to recognize true value and identify
correctly whether the reason for the unfavorable perception is temporary rather
than permanent. There is no assurance we will be successful at that in the
future, but it is nevertheless what we will be attempting to do.

Second, while the Fund will remain a "diversified fund" as defined by the
Investment Company Act of 1940, we will generally buy fairly significant
positions in stocks of companies that we find attractive. And given that we will
only buy companies that we find attractive, we will end up with larger positions
in fewer names. A more concentrated portfolio will cause the Fund's net asset
value to be more volatile than it is now. This idea of concentrating equity
investments in fewer names goes against the conventional mutual fund wisdom of
diversifying across 100 or more different stocks. However, diversifying to that
extent doesn't make sense to us. Why would you invest the same amount of money
in your top 5 or 10 stock prospects as you do in your bottom 5 or 10 stock
prospects?

In the meantime, we will keep the money invested in fixed income assets and
paying corresponding dividends until an opportunity comes along. We are in no
hurry and will not attempt to rush this process. So shareholders interested in
quick gains should probably look elsewhere to invest.

<PAGE>

I would like to welcome aboard Spectrum Asset Management, Inc. as the
Fund's new preferred stock adviser. The Fund's Board of Directors and Management
are extremely pleased to have this highly qualified and experienced investment
management firm associated with the Fund.

Now with regards to adviser fees, since the Fund's inception, the adviser
fee has been about 0.61%. Until such a time as the Fund is invested 50% or more
in common stocks, it is proposed the Fund pay a split fee on the two different
classes of securities. The Fund will pay adviser fees to Boulder Investment
Advisers, L.L.C. ("BIA") of 1.00%, although BIA will waive 0.40% of the fee
until 50% of the Fund's assets are invested in common stocks. Therefore, if the
proposed advisory fee were instituted today, it would be 0.60% on total net
assets since the Fund is 100% in preferreds today. Spectrum's fee will be paid
from this 0.60% fee. Their fee is proposed to be 0.45% on the first $50 million
under management, and 0.40% on all assets in excess of $50 million under
management. When the Fund's investments in common stocks reaches 50%, the
advisory fee will be a flat 1.00% on total net assets, out of which all
sub-advisers' fees would be paid, including Stewart Investment Advisers, Ltd.
("SIA"), the proposed sub-adviser for the Fund's common stock investments. We
will only make investments in common stocks when we believe the return is
expected to be high enough to compensate for the reduction in income and the
higher fees paid for managing common stocks.

The Horejsi family owns 42% of the Fund's common stock and hopes the Fund
will outperform fixed income investments over the next 30 years. We expect to
hold our stock at least that long. We are proposing to change the name of the
Fund to "Boulder Total Return Fund, Inc." Consequently we want the Fund built on
core investments, which we expect to be capable of enduring turbulent economic
conditions.

Our first objective is not to lose what we have. This mandates conservative
investing in companies with a high probability of future success. We also want
to keep taxes at a minimum so we want the Fund to buy companies we can own for a
very long time, producing capital gains taxes when realized, but postponed as
long as possible.

We want to attract investors into the Fund with objectives similar to ours:

A. Those who want an investment portfolio built on safety of principal.

B. Patient shareholders who are comfortable holding good companies for
the long-term, with the understanding that it may take a number of
years to see appreciable results. After 5 years, we believe these
shareholders will be glad they own the Fund.

C. Shareholders who want their profits taxed mostly as capital gains and
want that tax deferred as long as practical. While we intend to
continue to pay periodic dividends, our emphasis will be on total
return, not dividend income. Dividends are a very tax inefficient
method of distributing earnings.

-2-
<PAGE>

D. Shareholders who expect to own the Fund as part of their portfolio for
a long time.

Regarding the discount of the market price to the NAV, we think price
relative to NAV for funds is similar to price relative to earnings or book value
in other companies. We believe it is a function of market sentiment and, in
fact, many closed end fund investors have trading plans hinged around
fluctuations in this sentiment. We intend to focus on NAV and total return. If
we do a good job over the next 5 years or 30 years relative to the NAV, all
investors will be well served. If we have poor results relative to NAV and total
return, all investors will suffer regardless of whether they bought at NAV or at
a discount from NAV.

Whenever there is a price as far away from value as there currently is in
the Fund, there are likely patsies. Warren Buffett says "if you are in a poker
game for 5 minutes and you don't know who the patsy is, you're the patsy". So
now each of you gets to judge whether the patsy is the buyer or the seller at
today's price levels. It all depends on whether you have the same goals the Fund
will have going forward, and whether or not we are successful in achieving these
goals.

We welcome those as partners who have similar objectives. We assure you we
will be "eating our own cooking". We will continue to own 42% of the Fund for a
very long time.

Sincerely,

Stewart Horejsi

PREFERRED INCOME MANAGEMENT FUND INCORPORATED

1680 38th Street, Suite 800

Boulder, Colorado 80301

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To Be Held on August 27, 1999

To the Shareholders:

Notice is hereby given that a Special Meeting of Shareholders of Preferred
Income Management Fund Incorporated (the "Fund"), a Maryland corporation, will
be held at the Radisson Resort & Spa, 7171 North Scottsdale Road, Scottsdale,
Arizona 85253 at 9:00 a.m. M.S.T. (the "Special Meeting"), on August 27, 1999,
for the following purposes:

1. To approve or disapprove a proposed investment advisory agreement
between the Fund and Boulder Investment Advisers, L.L.C. ("BIA")
(Proposal 1).

2. To approve or disapprove a proposed sub-investment advisory agreement
among BIA, the Fund and Stewart Investment Advisers, Ltd. (Proposal
2).

3. To approve or disapprove a proposed sub-investment advisory agreement
among BIA, the Fund and Spectrum Asset Management, Inc. (Proposal 3).

-3-
<PAGE>

4. To approve or disapprove a change of the Fund's investment objective
to total return, including a related amendment to the Articles of
Incorporation of the Fund to change its name to Boulder Total Return
Fund, Inc. (Proposal 4).

5. To approve or disapprove an amendment to the Fund's fundamental
investment restriction regarding borrowing (Proposal 5).

6. To approve or disapprove an amendment to the Fund's fundamental
investment restriction regarding the issuance of senior securities
(Proposal 6).

7. To approve or disapprove an amendment to the Fund's fundamental
investment restriction regarding industry concentration (Proposal 7).

8. To approve or disapprove the deletion of the Fund's fundamental
investment restriction prohibiting investing for the purpose of
control or management of any company (Proposal 8).

9. To transact such other business as may properly come before the
Special Meeting or any adjournments thereof.

The Board of Directors of the Fund has fixed the close of business on July
22, 1999 as the record date for the determination of shareholders of the Fund
entitled to notice of and to vote at the Special Meeting.

By Order of the Board of Directors,

LAURA RHODENBAUGH

Secretary

July __, 1999

- --------------------------------------------------------------------------------
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE SPECIAL MEETING ARE REQUESTED TO
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD. THE PROXY CARD SHOULD BE
RETURNED IN THE ENCLOSED ENVELOPE, WHICH NEEDS NO POSTAGE IF MAILED IN THE
CONTINENTAL UNITED STATES. INSTRUCTIONS FOR THE PROPER EXECUTION OF PROXIES ARE
SET FORTH ON THE INSIDE COVER.
- --------------------------------------------------------------------------------

-4-
<PAGE>

INSTRUCTIONS FOR SIGNING PROXY CARDS

The following general rules for signing proxy cards may be of assistance to
you and may avoid the time and expense to the Fund involved in validating your
vote if you fail to sign your proxy card properly.

1. Individual Accounts: Sign your name exactly as it appears in the
registration on the proxy card.

2. Joint Accounts: Either party may sign, but the name of the party signing
should conform exactly to a name shown in the registration.

3. All Other Accounts: The capacity of the individual signing the proxy
card should be indicated unless it is reflected in the form of registration. For
example:

Registration Valid Signature
------------ ---------------

Corporate Accounts
(1) ABC Corp. ABC Corp.
(2) ABC Corp. John Doe, Treasurer
(3) ABC Corp., c/o John Doe Treasurer John Doe
(4) ABC Corp. Profit Sharing Plan John Doe, Trustee

Trust Accounts
(1) ABC Trust Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee, u/t/d 12/28/78 Jane B. Doe

Custodian or Estate Accounts
(1) John B. Smith, Cust., John B. Smith
f/b/o John B. Smith, Jr. UGMA
(2) John B. Smith, Executor John B. Smith, Jr., Executor
estate of Jane Smith

<PAGE>

PREFERRED INCOME MANAGEMENT FUND INCORPORATED
1680 38th Street, Suite 800
Boulder, Colorado 80301

SPECIAL MEETING OF SHAREHOLDERS

August 27, 1999

PROXY STATEMENT

This document is a proxy statement ("Proxy Statement") for Preferred Income
Management Fund Incorporated (the "Fund"). This Proxy Statement is furnished in
connection with the solicitation of proxies by the Fund's Board of Directors for
use at a Special Meeting of the Shareholders of the Fund to be held on August
27, 1999, at 9:00 a.m. M.S.T., at the Marriott Camelback Inn, 5402 East Lincoln
Drive, Scottsdale, Arizona 85253 and at any adjournments thereof (collectively,
the "Special Meeting"). A Notice of Special Meeting of Shareholders and a proxy
card for the Fund accompany this Proxy Statement. Proxy solicitations will be
made, beginning on or about July 26, 1999, primarily by mail, but proxy
solicitations may also be made by telephone, telegraph or personal interviews
conducted by officers of the Fund and First Data Investor Services Group, Inc.
("Investor Services Group"), the transfer agent and administrator of the Fund
and a wholly-owned subsidiary of First Data Corporation. In addition, the Fund
has retained Shareholder Communications Corporation to assist in the
solicitation of proxies from holders of the Fund's common stock for a fee
estimated at $5000 plus reimbursement of expenses. Further, the Fund will pay
broker-dealers a fee of $50 for each share of the Fund's money market cumulative
preferred stock that is voted in favor of certain proposals by their clients
that hold those shares if these proposals are approved by all shareholders. The
costs of the proxy solicitation and expenses incurred in connection with the
preparation of this Proxy Statement and its enclosures will be paid by the Fund.
The Fund also will reimburse brokerage firms and others for their expenses in
forwarding solicitation material to the beneficial owners of its shares.

The Annual Report of the Fund, including audited financial statements for
the fiscal year ended November 30, 1998, and the Semi-Annual Report of the Fund,
including unaudited financial statements for the period ended May 31, 1999, are
available upon request, without charge, by writing First Data Investor Services
Group, Inc., P.O. Box 1376, Boston, Massachusetts 02104, or calling
1-800-331-1710.

If the enclosed proxy is properly executed and returned in time to be voted
at the Special Meeting, the Shares (as defined below) represented thereby will
be voted in accordance with the instructions marked thereon. Unless instructions
to the contrary are marked thereon, a proxy will be voted to APPROVE the
Proposals listed in the accompanying Notice of the Special Meeting of
Shareholders. Any shareholder who has given a proxy has the right to revoke it
at any time prior to its exercise either by attending the Special Meeting and
voting his or her Shares in person or by submitting a letter of revocation or a
later-dated proxy to the Fund at the above address prior to the date of the
Special Meeting.

<PAGE>

Quorum Requirements and Adjournment

The Fund has two classes of capital stock: common stock, par value $0.01
per share (the "Common Stock"), and Money Market Cumulative Preferred(TM) Stock,
par value $0.01 per share ("MMP(R)"; together with the Common Stock, the
"Shares"). The holders of the Common Stock and the MMP(R) are each entitled to
one vote per share held, and fractional shares are entitled to proportional
shares of one vote. On the record date, July 22, 1999, the following number of
Shares of the Fund were issued and outstanding:

Common Stock MMP(R)
Outstanding Outstanding
----------- -----------

9,416,743 775

Under the By-Laws of the Fund, a quorum is constituted by the presence in
person or by proxy of the holders of a majority of the outstanding shares of the
Fund entitled to vote at the Special Meeting. If a proposal is to be voted upon
by the Common Stock and MMP(R) voting together as a single class, a quorum of
both classes in the aggregate must be present at the Special Meeting in order
for the proposal to be considered. If a proposal is to be voted upon by the
MMP(R) shares separately, a quorum of the MMP(R) shares must be present at the
Special Meeting in order for the proposal to be considered. In the event that
the requisite quorum is not present at the Special Meeting, or in the event that
the requisite quorum is present but sufficient votes of one or both classes of
the Shares to approve any of the proposals are not received, the persons named
as proxies on the enclosed proxy card may propose one or more adjournments of
the Special Meeting to permit further solicitation of proxies. Any such
adjournment where a quorum is not present at the Special Meeting will require
the affirmative vote of a majority of those shares represented at the Special
Meeting in person or by proxy (or a majority of the MMP(R) represented at the
Special Meeting in person or by proxy with respect to adjournments where a
required separate MMP(R) quorum is not present). If a quorum is present but
sufficient votes of one or both classes of the shares to approve a proposal are
not received, the persons named as proxies will vote those proxies which they
are entitled to vote FOR the relevant proposal in favor of such an adjournment
and will vote those proxies required to be voted AGAINST the relevant proposal
against any such adjournment. In determining whether to adjourn the Special
Meeting the following factors will be considered: the nature of the proposals
that are the subject of the Special Meeting, the percentage of votes actually
cast, the percentage of negative votes actually cast, the nature of any further
solicitation and the information to be provided to shareholders with respect to
reasons for the solicitation. A shareholder vote may be taken on one or more of
the proposals in the Proxy Statement prior to any such adjournment if sufficient
votes have been received for approval.

For purposes of determining the presence of a quorum for transacting
business at the Special Meeting, abstentions and broker "non-votes" will be
treated as shares that are present but which have not been voted. Broker
non-votes are proxies received from brokers or nominees when the broker or
nominee has neither received instructions from the beneficial owner or other

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<PAGE>

persons entitled to vote nor has discretionary power to vote on a particular
matter. Accordingly, shareholders are urged to forward their voting instructions
promptly.

Security Ownership of Certain Beneficial Owners

The following table sets forth certain information regarding the beneficial
ownership of the Fund's shares as of July 22, 1999 by each person who is known
by the Fund to beneficially own 5% or more of the Fund's Common Stock. To the
Fund's knowledge, there are no 5% or greater beneficial owners of MMP(R).

<TABLE>
<CAPTION>
Number of Shares
Name of Owner* Beneficially Owned Percentage Beneficially Owned
- -------------- ------------------ -----------------------------
<S> <C> <C>
Horejsi, Inc. (1) 2,071,430 22.00%

Lola Brown Trust 3,655,195 38.82%
No. 1B (1)(2)

Ernest Horejsi Trust 2,349,050 24.95%
No. 1B (1)(2)

Badlands Trust Company 3,945,550 41.89%
(1)(3)

Stewart R. Horejsi Trust 3,945,550 41.89%
No. 2 (1)(4)

Evergreen LLC (2) 2,071,430 22.00%

Aggregate Shares Owned** 3,945,550 41.89%
</TABLE>

- ----------
* The address of each listed owner is 122 South Phillips Avenue, Suite 220,
Sioux Falls, South Dakota 57104.

** Aggregate number and percentage are less than the sum total of amounts
shown for each owner because the same shares may be deemed beneficially
owned by more than one party (see Footnotes 1 through 4).

(1) Direct Ownership. Horejsi, Inc. ("HI"), the Lola Brown Trust No. 1B (the
"Brown Trust"), the Ernest Horejsi Trust No. 1B (the "EH Trust"), Badlands
Trust Company ("Badlands"), the Stewart R. Horejsi Trust No. 2 (the "SRH
Trust") and Stewart R. Horejsi are, as a group, considered to be a "control
person" of the Fund (as that term is defined in Section 2(a)(9) of the
Investment Company Act of 1940, as amended (the "1940 Act")). HI, the Brown
Trust, the EH Trust and Badlands directly own 2,071,430 (22.0%), 1,583,765
(16.8%), 277,620 (2.95%) and 12,735 (0.14%) of the Common Stock shares,
totaling 3,945,550 (41.89%). However, these entities and other trusts or
companies with interlocking management and/or common ownership may be
deemed to indirectly own additional Fund shares, which are included in the
table above (the "Horejsi Affiliates").

(2) Indirect Ownership Through HI. Numbers shown in the table include shares
held directly (see Footnote No. 1) and shares that may be deemed to be
beneficially owned indirectly through ownership of HI. The outstanding
stock of HI is owned by the Brown Trust, the EH Trust and Evergreen
Atlantic LLC ("Evergreen") in the following percentages - 40%, 24% and 36%.
The Trustees of the Brown Trust and the EH Trust are Badlands, Larry Dunlap
and Susan Ciciora, who is Mr. Horejsi's daughter, and Mr. Horejsi is a
beneficiary under each such trust. Any action by those trusts requires a
majority vote of the trustees. Consequently, both the trusts and each
trustee disclaim beneficial ownership of shares owned by HI. Evergreen is
owned by four trusts, three of which have Badlands as the sole trustee and
one of which has Badlands as one of three trustees, along with Susan
Ciciora and Robert Kastner. Mr. Stewart Horejsi is the manager of

-3-
<PAGE>

Evergreen. Both Evergreen and the trusts that own it, as well as the
trustees of those trusts, disclaim beneficial ownership of shares owned
directly by HI.

(3) Ownership by Badlands. Number shown in the table includes shares held
directly by Badlands (see Footnote No. 1) and shares that may be deemed to
be beneficially owned indirectly by Badlands through direct or indirect
ownership by the Brown Trust, the EH Trust and HI. Badlands is the sole
trustee of three trusts that control Evergreen (see Footnote No. 2) and,
together with Larry Dunlap and Susan Ciciora, one of three trustees of the
Brown Trust and the EH Trust. Badlands is a trust company organized under
the laws of South Dakota, which is wholly owned by the SRH Trust, an
irrevocable trust organized by Mr. Stewart Horejsi for the benefit of his
children. The directors of Badlands are Larry Dunlap, Stephen C. Miller,
Robert Ciciora, who is the brother of Mr. Horejsi's son-in-law (John
Ciciora), Ann M. Hartmann and Carol Jorgensen. Badlands and its directors
disclaim beneficial ownership of shares owned directly by the Brown Trust,
the EH Trust and HI.

(4) Indirect Ownership by SRH Trust. Number shown in the table reflects shares
that may be deemed to be beneficially owned indirectly through ownership of
Badlands. The trustees of the SRH Trust are Badlands, Robert Ciciora and
Robert Kastner. Both the Trust and its trustees disclaim beneficial
ownership of shares beneficially owned directly or indirectly by Badlands.

Information as to beneficial ownership in the previous paragraph has been
based on a certification obtained from a representative of the Horejsi
Affiliates. All other information as to beneficial ownership is based on reports
filed with the Securities and Exchange Commission (the "SEC") by such holders.

As of July 22, 1999, Cede & Co., a nominee partnership of Depository Trust
Company, held [ ] shares or ___% of Common Stock outstanding and 775 shares or
[100]% of MMP(R) outstanding of the Fund.

As of July 22, 1999, the officers and directors of the Fund, as a group,
owned 3,947,161 Common Shares (this amount includes the aggregate shares of
Common Stock owned by the Horejsi Affiliates set forth above) and 0 shares of
MMP(R) of the Fund, representing 41.9% of Common Shares and 0% of MMP(R).

Summary of Voting Rights on Proxy Proposals

The following table summarizes the voting requirements for each proposal:

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
SHAREHOLDERS VOTE REQUIRED
PROPOSAL ENTITLED TO VOTE FOR APPROVAL
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Approval of investment Common Stock and MMP(R) vote Approved by a "majority of the
advisory agreement between the together as a single class outstanding voting securities"
Fund and Boulder Investment of the Fund
Advisers, LLC. ("BIA")

- ----------------------------------------------------------------------------------------------------
2. Approval of sub-investment Common Stock and MMP(R) vote Approved by a "majority of the
advisory agreement among BIA, together as a single class outstanding voting securities"
the Fund and Stewart of the Fund
Investment Advisers, Ltd.

- ----------------------------------------------------------------------------------------------------
3. Approval of sub-investment Common Stock and MMP(R) vote Approved by a "majority of the
advisory agreement among BIA, together as a single class outstanding voting securities"
the Fund and Spectrum Asset of the Fund
Management, Inc.

- ----------------------------------------------------------------------------------------------------
</TABLE>

-4-
<PAGE>

<TABLE>
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
4. Approval of change of the Common Stock and MMP(R) vote Approved by an "absolute
Fund's investment objective to together as a single class; majority" of the Fund and
total return* MMP(R) vote as a separate separately by a "majority of
class the outstanding" MMP

- ----------------------------------------------------------------------------------------------------
5. Approval of an amendment to Common Stock and MMP(R) vote Approved by a "majority of the
the fundamental investment as a single class; MMP(R) vote Fund's outstanding voting
restriction regarding as a separate class securities" of the Fund and
borrowing separately by a "majority of
the outstanding" MMP

- ----------------------------------------------------------------------------------------------------
6. Approval of an amendment to Common Stock and MMP(R) vote Approved by a "majority of the
the fundamental investment as a single class; MMP(R) vote Fund's outstanding voting
restriction regarding the as a separate class securities" of the Fund and
issuance of senior securities separately by a "majority of
the outstanding" MMP

- ----------------------------------------------------------------------------------------------------
7. Approval of an amendment to Common Stock and MMP(R) vote Approved by a "majority of the
the fundamental investment as a single class; MMP(R) vote Fund's outstanding voting
restriction regarding industry as a separate class securities" of the Fund and
concentration separately by a "majority of
the outstanding" MMP

- ----------------------------------------------------------------------------------------------------
8. Approval of the deletion of Common Stock and MMP(R) vote Approved by a "majority of the
the fundamental investment as a single class; MMP(R) vote Fund's outstanding voting
restriction prohibiting as a separate class securities" of the Fund and
investing for the purpose of separately by a "majority of
control or management the outstanding" MMP of any
company

- ----------------------------------------------------------------------------------------------------
</TABLE>

- ----------
* A vote in favor of this proposal will also be considered a vote in favor
of the related proposal to amend the Fund's Articles of Incorporation to change
the name of the Fund to Boulder Total Return Fund, Inc.

For purposes of this proxy statement, "majority of the outstanding voting
securities" of the Fund or "Majority Fund-wide Vote" means the affirmative vote
of the lesser of (a) 67% or more of the shares of Common Stock and MMP(R)
present or represented by proxy at the Special Meeting or (b) more than 50% of
the outstanding shares of Common Stock and MMP(R), in each case voting together
as a single class. A "majority of the outstanding" MMP or "Majority MMP Vote"
means the affirmative vote of the lesser of (a) 67% or more of the MMP(R)
present or represented by proxy at the Special Meeting or (b) more than 50% of
the outstanding MMP(R), in each case voting as a separate class. In addition, an
"absolute majority" of the Fund means the affirmative vote of the holders of
more than 50% of the outstanding shares entitled to vote of the Common Stock and
MMP(R), voting together as a single class. With respect to Proposal 4, although
there are different voting requirements applicable to changing the Fund's
investment objective and changing the Fund's name, the Proposal will not take
effect unless the higher of the two voting requirements is met, specifically,
the affirmative vote of an "absolute majority" of the Fund, in addition to a
separate Majority MMP Vote.

-5-
<PAGE>

Abstentions and broker non-votes will be counted as present for quorum
purposes. However, because they are not voted in favor of a proposal and each of
the proposals is dependent on approval by a percentage of shares outstanding or
shares present, they will have the effect of a "no" vote on all proposals.

In the event any one or more proposals are not approved, the Board will
consider what further action to take, which may include resoliciting
shareholders and/or modifying aspects of the relevant proposals. In light of the
large size of the position held by Horejsi Affiliates (see "Security Ownership
of Certain Beneficial Owners" above), it appears likely that sufficient votes to
approve Proposals 1, 2 and 3 will be obtained.

Except for Proposal 4 (which links the change in the Fund's investment
objective to the change to its name), each proposal is independent of any other
proposal so that the implementation of any successful proposal is not contingent
on the success of any other proposal.

Payments to MMP(R) Brokers

Holders of MMP(R) vote as a separate class on Proposals 4, 5, 6, 7 and 8.
The Fund has agreed to pay each broker-dealer a fee equal to $50 per share for
each share of MMP(R) held by its clients that votes in favor of each of these
five proposals such fee to be paid only if each of Proposals 4, 5, 6, 7 and 8
receive the requisite vote for approval by all Fund shareholders. The fee will
be paid to compensate broker-dealers for their solicitation efforts and will be
available to all broker-dealers with clients that hold MMP(R) shares on July 22,
1999. Assuming all 775 shares of MMP(R) vote in favor of the relevant proposals,
the amount payable by the Fund would equal $38,750.

OVERVIEW

This Proxy Statement describes eight proposals, which, if approved, will
permit the Fund to move in a new direction through a restructuring of the Fund's
investment focus and retention of new investment advisers. The Board of
Directors of the Fund, including the non-interested Directors, unanimously
recommends that you vote in favor of each proposal. Mr. Stewart R. Horejsi, a
director of the Fund whose family interests hold approximately 42% of the Fund's
outstanding Common Stock, has informed the Board that those shares will be voted
in favor of each of the eight proposals.

Background Information

Since the Fund's inception in 1993, the Fund has been managed by Flaherty &
Crumrine Incorporated ("F&C") in accordance with the stated investment objective
of high current income consistent with preservation of principal. The Fund
sought to achieve this objective by investing at least 65% of its assets in a
portfolio of preferred stocks, which were hedged using options on U.S. Treasury
bond futures. The Fund concentrated its investments in the utilities and banking
industries and had limited authority to invest in common stock.

In 1997 and 1998, a substantial portion of the Fund's shares were
accumulated by the Horejsi Affiliates, which waged a successful proxy contest in
1998 for control of two board seats. At that time and subsequently, Mr. Horejsi
expressed the view that the Fund's investment focus

-6-
<PAGE>

should be modified to emphasize investment in common stocks for purposes of
total return rather than income.

Following the shareholders meeting in April, 1999 at which three new Board
members were elected, Mr. Horejsi presented a formal proposal to change the
Fund's investment objective and to change the Fund's investment adviser for
common stock investments. Mr. Horejsi specifically proposed (1) that the Fund's
investment objective be changed to total return to be achieved through a
combination of common stock and fixed income investments, including preferred
stocks and bonds, (2) that two companies he controlled, BIA and SIA, become
investment adviser and sub-adviser, respectively, to the Fund, and (3) that
certain investment restrictions be modified or deleted. After consideration, the
Board approved these changes and agreed to recommend them to shareholders. At
that time, the Board determined to continue F&C as the Fund's sub-adviser for
preferred stock investments. However, on May 11, 1999, F&C tendered its
resignation as adviser to the Fund. As a result the Board undertook a process of
selecting a replacement and did select Spectrum Asset Management, Inc.
("Spectrum"), which began providing investment advisory services to the Fund on
an interim basis commencing July 1, 1999. (Under applicable provisions of the
1940 Act, Spectrum may serve as investment adviser, with compensation, for 120
days without shareholder approval.) At the same time that the Board approved
Spectrum as the Fund's interim investment adviser, it also approved Spectrum to
serve as the preferred stock sub-adviser to BIA.

Proposed Changes To Investment Focus

The Fund's Board of Directors is recommending (i) that the Fund's
investment objective be changed from "high current income consistent with
preservation of capital" to "total return," and, subject to the approval by the
Fund's shareholders of this proposal, (ii) an amendment to the Fund's Articles
of Incorporation changing its name to Boulder Total Return Fund, Inc. If the
change regarding the Fund's investment objective is approved, the Board would
implement a Board-approved investment policy requiring that, under normal market
conditions, the Fund invest at least 80% of its net assets in common stocks and
fixed income securities. (For purposes of this Proxy Statement, the term "fixed
income securities" includes bonds, notes, bills, debentures, convertible
securities, preferred stocks, bank debt obligations, repurchase agreements and
short-term money market obligations. The term "preferred stocks" or "preferreds"
includes traditional preferred stocks as well as so-called "hybrid," or taxable,
preferred securities and other similar or related investments. These hybrid
securities, which currently are marketed under such acronyms as TOPrS, TIPS,
QUIPS, MIPS, QUIDS, QUICS and Capital Securities, may be debt-like in key
characteristics.)

To achieve the new objective, the Fund would pursue investment strategies
expected to produce both long-term capital appreciation through investment in
common stocks and high current income consistent with preservation of capital
through investments in income producing securities, such as preferred stocks and
bonds. It is expected that when the Fund invests in common stocks, it will
invest in U.S. companies, though it will not be limited to investing in the U.S.
stock market. Further, it is expected that the Fund will have a low turnover
rate in its investment in common stocks, since the Fund will seek to invest in
common stocks that can be held for a period of years. The investment strategy
used in equity investments will not include

-7-
<PAGE>

"market timing" where equities are bought and sold based on daily, weekly or
periodic price fluctuations. The Fund typically will invest in stocks that have
a proven track record of earnings, and the prospect of increased future value
through growth in revenues and profits. The Fund may invest in companies of any
size; however, it is expected that the Fund will not make significant
investments in start-up companies, initial public offerings, non-public
companies, or companies with little or no operating history.

The Fund will operate as a "diversified" investment company, as defined in
the 1940 Act. Under this definition, the Fund must limit to 5% the portion of
its assets invested in the securities of a single issuer. This limit does not
apply, however, to 25% of the Fund's assets, which may be invested in a single
issuer. The Fund intends to concentrate its common stock investments in a few
issuers and to take large positions in those issuers, consistent with being a
"diversified" fund. As a result, the Fund is subject to a greater risk of loss
than a fund that diversified its investments more broadly. Taking larger
positions is also likely to increase the volatility of the Fund's net asset
value reflecting fluctuation in the value of large Fund holdings.

The portion of the Fund's investments in preferred stocks and other fixed
income investments will be managed with the same objective that the Fund
currently has--high current income consistent with preservation of capital. The
Fund will continue to use hedging strategies on that portion of the assets
invested in preferred stocks and bonds. Although the Fund is authorized to
invest in debt securities, as well as preferred stocks, the Fund has no current
intention of investing in fixed income securities other than preferred stocks
and cash equivalents, including as preferred stocks those types of "hybrid"
preferred stocks in which the Fund currently invests that have certain
characteristics of debt securities. The credit quality and maturities of the
Fund's preferred stock portfolio, as well as the approach to, and means utilized
for, hedging that portfolio will remain substantially unchanged.

The Fund may, for temporary defensive purposes, allocate a higher portion
of its assets to hedged preferred stocks, or cash and cash equivalents. For this
purpose, cash equivalents consist of short-term (less than twelve months to
maturity) U.S. Government securities, certificates of deposit and other bank
obligations, investment grade corporate bonds and other debt instruments, and
repurchase agreements. Normally, the Fund will not have more than 10% of its
assets in cash or cash equivalents.

The Fund's portfolio will be invested primarily in a combination of fixed
income securities and common stocks. The common stocks are expected to have
greater risk exposure and reward potential over time than investments in
preferreds. The volatility of common stock prices has historically been greater
than fixed income securities, and as the Fund shifts a portion of its assets
into common stocks, the volatility of the Fund's net asset value may also
increase. The time horizon for the Fund to achieve its objective of total return
will likely be longer than for a fund that invests solely for income.

Leverage. Currently, the Fund is leveraged with $77.5 million of MMP(R),
and it is intended that the Fund will remain leveraged. The rate for the MMP(R)
shares is set through an auction process which occurs every 49 days. It is
expected that as long as the Fund utilizes leverage, it will have a proportional
investment in income-producing securities.

-8-
<PAGE>

Shares of MMP(R) may be redeemed at the option of the Fund as a whole or in
part at a redemption price equal to $100,000 plus accumulated dividends plus an
additional distribution right representing the right to an additional payment to
compensate holders in instances where, for example, the Fund allocates capital
gains or other income not eligible for the Dividends Received Deduction to
MMP(R) holders.

Dividends. Because the Fund's investment objective will be total return,
and because the Fund is leveraged, income will remain a part of the Fund's
strategy. Substantially all income the Fund earns in excess of the required
payments to the MMP(R) shareholders and the Fund's expenses will continue to be
distributed to shareholders on a regular periodic basis. However, regular
dividend payments to common shareholders will not have the same priority as they
have had in the past. Fund management believes that long-term capital
appreciation from investment in equities provides the potential for greater
returns over the long term and is generally more tax efficient than investments
in dividend- or interest-paying securities. In general, all of the Fund's net
investment income must be paid out to shareholders at least annually, which is a
taxable event for shareholders who hold Fund shares in a taxable account.
However, securities with unrealized capital appreciation do not become taxable
until such time as the securities are sold and the gain realized.

Net investment income and net realized short-term capital gains will be
distributed at least annually, and the Board of Directors will determine on an
annual basis whether the Fund will pay out its net realized long-term capital
gains, if any, or retain the capital gains in the Fund.

Rating Agency Guidelines And Asset Coverage Requirements. The MMP(R) is
currently rated "aa1" by Moody's Investor Services ("Moody's") and "AA+" by
Fitch Investors Service. The Fund's investments are subject to certain
investment guidelines and certain minimum asset and dividend coverage and
liquidity requirements established by Moody's. The Fund intends to continue to
abide by such guidelines and to maintain the required coverage assets as long as
the MMP(R) are outstanding. The Fund believes that neither Moody's nor Fitch
should have a basis for changing the rating of the MMP(R) as long as these
guidelines and requirements are complied with. The Fund has received a letter
from Moody's stating that its rating on the MMP(R) will not be affected by the
proposed changes to the Fund's investment focus or management. [confirm]

Reason For Proposed Changes. The purpose of changing the Fund's objective
to total return is to allow the Fund the opportunity to invest more
substantially in common stocks than currently allowed under the existing
objective. The management of the Fund believes that by allowing the Fund to
invest more of the Fund's assets in common stocks, the Fund will have the
potential to produce a higher total return over the long term than shareholders
would achieve if the Fund's objective remains "income". Historically, common
stocks, as measured by the Standard & Poor's Index of 500 Stocks, have
outperformed every other asset class over the long term, including fixed income
securities.

The Fund is required to change its name because, assuming shareholders
approve the change in objective, it no longer will maintain 65% of its assets in
preferred stocks and no longer

-9-
<PAGE>

will have "income" as its investment objective. Thus, the existing name is no
longer an appropriate reflection of what the Fund is.

Proposed Changes To Management

Changes to the Fund's investment management arrangements are necessitated
by the above-described change in investment focus. In addition, in June 1999,
the resignation of F&C was accepted and Spectrum was selected to manage the Fund
on an interim basis. The specific proposals relating to management changes are
as follows:

Boulder Investment Advisers, L.L.C., a Colorado limited liability company
("BIA"), would act as the Fund's investment adviser. BIA will utilize Stewart
Investment Advisers, Ltd., an investment advisory firm controlled by Stewart R.
Horejsi, as a sub-adviser to focus primarily on the Fund's investments in common
stocks, and will utilize Spectrum as a sub-adviser to manage the Fund's
investments in preferred stocks. The Fund would pay BIA a monthly fee for its
advisory services at the annual rate of 1.00% of the Fund's total average
monthly net assets, out of which BIA will be responsible for paying the two
sub-advisers. Forty percent of the advisory fee payable to BIA will be waived
until such time as the portion of the Fund's assets invested in common stock and
cash which has been allocated for common stock investments equals 50% or more of
the value of the Fund's total assets. The services to be provided by the adviser
and each sub-adviser (and the fees payable to each) are described more fully
under Proposals 1, 2 and 3 below.

Evaluation by the Board

In advance of the first Board meeting following the shareholders meeting on
April 21, 1999, the Board was presented with a proposal by BIA to change the
investment adviser for the Fund and to change the Fund's investment objective
(the "Restructuring Proposal"). The Restructuring Proposal represented the
recommendation by Stewart R. Horejsi, whose family interests held approximately
42% of the Fund's Common Stock. The Restructuring Proposal was considered at two
separate Board meetings -- on April 21, 1999 and on May 1, 1999. Informal
conversations were also held between various Board members concerning these
matters between those meetings. Throughout the process of considering the
Restructuring Proposal, the Board was advised by counsel to the Fund and
separate counsel that the independent Board members had retained.

Extensive materials were presented to and evaluated by the Board with
regard to each aspect of the Restructuring Proposal -the change in investment
objective and policies and the change in investment adviser. With regard to the
change in investment objective and policies, the Board reviewed materials
describing the new objective and policies, the types of securities in which the
Fund might invest, the risk and return characteristics of those securities, the
historical performance of common stocks in relation to other asset classes and
related matters. The Board evaluated the impact of the proposed change in
objective and policies on shareholders, including the possible tax consequences
of repositioning the Fund's portfolio toward common stocks, the likely reduction
in the Fund's regular monthly dividend as a higher proportion of assets are
invested in non-income producing securities, the resulting increase in the
Fund's expense ratio and

-10-
<PAGE>

the continued ability of the Fund to meet rating agency guidelines applicable to
the MMP(R) as the portion of the Fund invested in common stocks increased. The
Board also reviewed the Fund's current portfolio holdings, current Fund
financial information, the Fund's performance record since inception, the
historical performance record of various asset classes as measured by market
indices, current and anticipated market conditions for preferred stocks and
common stocks and the recent price history of the Fund's Common Stock. The Board
requested and received supplemental information on certain matters germane to
its analysis.

With specific regard to the MMP(R), the Board considered materials
confirming that rating agency guidelines would not be violated by the change in
objective and policies and data demonstrating the lack of impact of the proposed
change on the guidelines based on various assumptions. The Board also considered
the availability and costs of other forms of leverage and the relative benefits
and costs of maintaining the MMP(R). Information was also presented to the Board
affirming that Moody's did not intend to change the rating on the MMP(R) as a
result of the proposed changes.

With regard to the second aspect of the Restructuring Proposal -- the
change in investment adviser to two companies controlled by Stewart R. Horejsi
or his affiliates -- extensive written materials were also presented to the
Board. Those materials included information about BIA and SIA, their personnel,
financial condition, compliance and systems capability and related matters. The
Board also reviewed a report prepared by an independent accounting firm showing
the investment performance achieved by Mr. Horejsi over the past 10 years in
common stocks managed for his family interests. Cognizant of the fact that
neither BIA, SIA, nor Mr. Horejsi himself had previously advised a registered
investment company, the Board carefully considered the capability of those
parties to advise the Fund. In addition, the Board also considered the
reasonableness of the proposed fees to be paid to BIA and SIA (after payment of
amounts to the Fund's sub-adviser for preferred stock investments). In this
regard, the Board reviewed a variety of materials, including data prepared by
Lipper Analytical Services showing fees charged by funds investing in common
stocks, expense ratios for those funds and profitability data of SIA and BIA
assuming approval of the proposed fee. In light of the possibly extended
timetable for investing Fund assets in common stocks, the Board negotiated a
waiver of a portion of the proposed fee until such time as at least 50% of Fund
assets were invested in common stocks and cash which has been allocated for
investment in common stocks.

Through the process of considering the Restructuring Proposal, the Board
held extensive discussions with Mr. Horejsi and his representatives. In the
final analysis, the Board gave considerable weight to the views of Mr. Horejsi,
as a major Fund shareholder. Nonetheless, the Board carefully evaluated the
impact of the Restructuring Proposal on other holders of the Fund's Common Stock
and MMP(R).

On May 1, 1999, the Directors of the Fund, including the non-interested
directors, unanimously approved the Proposal, including each of the items
described in this Proxy Statement as Proposals 1, 2 and 4 through 8, and
recommended their approval to Fund shareholders. At the same time the Board
approved a sub-advisory agreement with F&C to manage the preferred stock portion
of the Fund and determined to recommend it to shareholders. Subsequent events
(see "Background Information" above) required that this recommendation be
changed.

-11-
<PAGE>

----------

In order that your Shares may be represented at the Special Meeting, you
are requested to vote on the following matters:

PROPOSAL 1: TO APPROVE OR DISAPPROVE A NEW INVESTMENT ADVISORY
AGREEMENT BETWEEN THE FUND
AND BOULDER INVESTMENT ADVISERS, L.L.C.

Summary of Proposal

For the reasons and based on an extensive analysis of the factors described
above (see "Overview--Proposed Changes To Management--Evaluation by the Board"),
all of the Directors of the Fund, including the non-interested Directors, have
determined, subject to approval by the shareholders of the Fund, to approve the
execution of a new investment advisory agreement (the "New Advisory Agreement")
with BIA and respective sub-investment advisory agreements among (i) BIA,
Stewart Investment Advisers, Ltd. ("SIA") and the Fund (the "SIA Sub-Advisory
Agreement") (see Proposal 2) and (ii) BIA, Spectrum and the Fund (the "Spectrum
Sub-Advisory Agreement") (see Proposal 3) (together, the "Sub-Advisory
Agreements"). At a Special Meeting of the Board of Directors held on May 1,
1999, the Board of Directors, including the "non-interested" Directors, approved
the New Advisory Agreement and the SIA Sub-Advisory Agreement to be effective
upon approval by shareholders of the Fund. At a Special Meeting of the Board of
Directors held on June 3, 1999, the Board of Directors, including the
"non-interested" Directors, approved the Spectrum Sub-Advisory Agreement also to
be effective upon approval by shareholders of the Fund.

Information About BIA

BIA was formed on April 8, 1999 as a Colorado limited liability company;
its principal place of business is 1680 38th Street, Boulder, Colorado 80301.
BIA, which is registered as an investment adviser under the Investment Advisers
Act of 1940, has not previously served as adviser to a registered investment
company or managed assets on a discretionary or non-discretionary basis.
However, BIA will delegate substantial responsibilities under the New Advisory
Agreement to SIA, a principal of which is Stewart R. Horejsi, who has extensive
experience managing common stocks for his family interests. The members of BIA
are HI and the Brown Trust (the "Members"). The members each hold a 50% interest
in BIA. The Members are "affiliated persons" of the Fund (as that term is
defined in the 1940 Act) and together with the other Horejsi Affiliates hold
41.89% of the common Stock. Please refer to the section entitled "Security
Ownership of Certain Beneficial Owners" on page __ for additional information
relating to HI and the Brown Trust.

The executive officers of BIA and the principal occupation of each are set
forth below:

- --------------------------------------------------------------------------------
Name and Position with BIA Principal Occupation
- --------------------------------------------------------------------------------
Stephen C. Miller - President, President, Chief Executive Officer
- --------------------------------------------------------------------------------

-12-
<PAGE>

- --------------------------------------------------------------------------------
General Counsel and Executive and Chairman of the Board of the
Officer Fund; vice president and Secretary
of SIA; Director and President of
HI, since 1997; Director, Vice
President and Assistant Secretary
of Badlands; Counsel to Krassa,
Madsen & Miller, LLC since 1991;
and Manager of Boulder
Administrative Services, L.L.C.
("BAS")

- --------------------------------------------------------------------------------
Carl D. Johns - Investment Manager, Chief Financial Officer, Chief
Vice President and Treasurer Accounting Officer, Vice President
and Treasurer of the Fund;
Assistant Manager of BAS

- --------------------------------------------------------------------------------
Laura Rhodenbaugh - Secretary Secretary of BAS; Treasurer of SIA;
Secretary and Treasurer of various
subsidiaries of HI.

- --------------------------------------------------------------------------------

Carl D. Johns, the Fund's Vice President and Treasurer, will be the
investment manager for BIA, responsible for BIA's day-to-day advisory
activities. Mr. Johns received a Bachelors degree in Mechanical Engineering at
the University of Colorado in 1985, and a Masters degree in Finance from the
University of Colorado in 1991. He worked at Flaherty & Crumrine, Incorporated,
from 1992 to 1998. During that period he was an Assistant Treasurer for the
Preferred Income Fund Incorporated, the Preferred Income Opportunity Fund
Incorporated, and the Fund.

Pursuant to the SIA Sub-Advisory Agreement, BIA and the Fund will engage
SIA, a Barbados incorporated international business company, as a sub-adviser
and primary investment manager and analyst. SIA will bear the primary
responsibility for investment of the Fund's assets other than those for which
Spectrum is responsible. Stewart R. Horejsi is an employee of SIA and is its
primary investment manager. Mr. Horejsi has been a Director of the Fund since
July 1997. For more information about SIA and Mr. Horejsi, please see the
information provided in connection with Proposal 2, below.

As indicated above, BIA also proposes to engage Spectrum as the Fund's
sub-adviser to manage the Fund's preferred stock investments. For information
about Spectrum, please see the information provided in connection with Proposal
3, below.

Because of the relationships described above under "Security Ownership of
Certain Beneficial Owners" between Stewart R. Horejsi and the Members of BIA and
the parent company of SIA, Mr. Horejsi may be deemed to have an economic
interest in the outcome of voting on each Proposal described in this Proxy
Statement.

The Current and Interim Advisory Agreements

The F&C Agreement. F&C, located at 301 E. Colorado Boulevard, Suite 720,
Pasadena, California 91101, served as the Fund's investment adviser until June
30, 1999. The

-13-
<PAGE>

investment advisory agreement with F&C, dated February 11, 1993 (the "F&C
Advisory Agreement"), was initially approved by the sole shareholder on [ ] and
most recently approved by the Board of Directors on January 25, 1999. Prior to
February 1, 1999, the Fund paid F&C as compensation for its services as
investment adviser, a monthly fee of .675 of 1.00% of the Fund's average monthly
net assets up to $100 million and .55 of 1.00% of the Fund's average monthly net
assets of $100 million or more. On March 22, 1999, the Board of Directors,
including a majority of the "non-interested" Directors, ratified an amendment to
the F&C Agreement, effective February 1, 1999, reducing the compensation payable
to F&C to a monthly fee of .58 of 1.00% of the Fund's average monthly net assets
up to $100 million and .50 of 1.00% on the fund's average monthly net assets of
$100 million or more. The amount of the fee reduction was determined by the
Board to be commensurate with F&C's relinquishment of certain administrative and
executive management services to the Fund which were assumed by BAS. During the
fiscal year ended November 30, 1998 the Fund paid $1,394,302 in investment
advisory fees to F&C.

Under the terms of the F&C Advisory Agreement, F&C was responsible for
making investment decisions, supplying investment research and portfolio
management services and placing purchase and sale orders for portfolio
transactions.

The Spectrum Interim Agreement. Under the interim advisory arrangements
(the "Interim Advisory Agreement") approved by the Board on June 3, 1999,
commencing July 1, 1999 Spectrum became responsible for making investment
decisions, supplying investment research and portfolio management services and
placing purchase and sale orders for portfolio transactions for the Fund. The
terms of the Interim Advisory Agreement are substantially similar to those of
the F&C Advisory Agreement except for the names of the parties, the effective
dates and the fees to be paid. For services provided under the Interim Advisory
Agreement, Spectrum will receive an annual fee, payable monthly, of .45% of the
first $50 million of the Fund's average monthly net assets and .40% on amounts
above $50 million. Information with respect to the executive officers and
directors of Spectrum and principal occupation of each are set forth in
connection with Proposal 3, below. The Interim Advisory Agreement will terminate
automatically upon the effectiveness of the Spectrum Sub-Advisory Agreement (see
Proposal 3, below).

The New Advisory Agreement

A copy of the New Advisory Agreement is set forth as Exhibit A to this
Proxy Statement. If approved by shareholders, the New Advisory Agreement will
become effective on the date of such approval and continue initially for a
two-year period and continue for successive annual periods thereafter, provided
such continuance is approved at least annually by (a) a majority of the Board of
Directors who are not "interested persons" of the Fund (as that term is used in
the 1940 Act) and a majority of the full Board of Directors or (b) a majority of
the outstanding voting securities of the Fund (as defined in the 1940 Act). The
New Advisory Agreement is terminable, without penalty, on 60 days' written
notice by the Board of Directors of the Fund or by BIA upon written notice to
the other. The New Advisory Agreement will terminate automatically upon its
assignment (as defined in the 1940 Act).

-14-
<PAGE>

Under the New Advisory Agreement, BIA is responsible for making investment
decisions, supplying investment research and portfolio management services and
placing purchase and sale orders for portfolio transactions, which functions
will be substantially delegated to SIA for common stock investing and to
Spectrum for preferred stock investing. BIA is responsible for monitoring and
evaluating the services provided to the Fund by SIA and Spectrum. BIA will also
make asset allocation decisions for the Fund and determine the extent and nature
of the Fund's leverage, which services will be delegated to SIA. The New
Advisory Agreement also provides that BIA will bear all expenses in connection
with its performance, including fees that it will pay to sub-advisers under the
Sub-Advisory Agreements. As stated above, the Fund's universe of investments is
proposed to be expanded to include common stocks as well as fixed income
securities in addition to preferreds. Nevertheless, the Fund will not invest in
fixed income securities other than preferreds (other than in cash equivalents
for temporary defensive purposes) unless and until the Board has specifically
authorized an investment adviser for those fixed income securities and
established appropriate policies for those investments. The adviser selected
could be BIA, SIA, Spectrum or another party. The Fund will notify shareholders
in advance of implementing any plan to invest in fixed income securities other
than preferreds and cash equivalents.

Pursuant to the New Advisory Agreement, BIA would receive an annual fee,
payable monthly, in the amount agreed to among the parties from time to time.
For the one-year period commencing upon the effective date, BIA would be paid by
the Fund an annual fee, payable monthly, of 1.00% of the Fund's average monthly
net assets, out of which BIA would be responsible for compensating the
sub-advisers. Under the New Advisory Agreement, BIA has agreed that until the
Fund has invested at least 50% of its assets in common stocks and cash
equivalents held for investment in common stocks, BIA will waive 40% of the
1.00% fee.

The New Advisory Agreement provides that BIA will be indemnified by the
Fund for losses, claims and expenses not caused by BIA's willful misfeasance,
bad faith or gross negligence on its part in the performance of its duties or
from reckless disregard by it of its obligations and duties under the Agreement.

At July 22, 1999, the Fund's net assets equaled approximately $218 million.
If the fee structure described in the New Advisory Agreement was in effect on
that date, assuming that at least 50% of the Fund's assets were invested in
common stocks on that date, total advisory fees paid by the Fund would have been
1.00% of the Fund's net assets on an annual basis. Out of this fee (equal to 100
basis points), BIA would have paid approximately 21.1 basis points (.211%) to
Spectrum and 63.1 basis points (.631%) to SIA.

Expense Table

The following table shows the Fund's expenses as of November 30, 1998 and
pro forma expenses giving effect to the proposed changes in the Fund's
investment advisory arrangements and the recent change to add BAS as
co-administrator of the Fund.

TABLE OF FEES AND EXPENSES
CURRENT AND PRO FORMA

-15-
<PAGE>

Shareholder Transaction Expenses For fiscal
year 1998 Pro Forma*
--------- ----------

Dividend Reinvestment Plan Fees None None

Annual Operating Expenses
(as a percentage of net assets attributable to Common Shares)

Management Fee .61% 1.00%
Other expenses(1) .61% .65%
Total Annual Operating Expenses 1.22% 1.65%**

- ----------
* The pro forma information shown assumes that Proposals 1, 2 and 3 have been
approved and that at least 50% of the Fund's assets are invested in common
stocks.

** Absent extraordinary expenses relating to this proxy solicitation, Other
expenses would be .51% and Total Annual Operating Expenses would be 1.51%.

Example

The following example illustrates the projected dollar amount of cumulative
expenses that would be incurred over various periods with respect to a
hypothetical investment in the Fund. These amounts are based upon payment by the
Fund of current and pro forma expenses at levels set forth in the above table.

A common stockholder would pay the following expenses on a $1,000
investment, assuming a 5% annual return:

- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Current $12.50 $38.93 $67.40 $148.40
- --------------------------------------------------------------------------------
Pro Forma* $16.91 $52.43 $90.35 $196.66
- --------------------------------------------------------------------------------

* Absent extraordinary expenses relating to this proxy solicitation, Pro
Forma expenses would have been $15.48, $48.05, $82.91 and $181.17,
respectively, for the relevant periods.

The foregoing table is to assist you in understanding the various costs and
expenses that a Common Stock investor in the Fund will bear directly or
indirectly. The assumed 5% annual return is not a prediction of, and does not
represent, the projected or actual performance of the Fund's Common Stock.
Actual expenses and annual rates of return may be more or less than those
assumed for purposes of this Example.

- ----------
(1) "Other expenses" are based on estimated amounts for the current fiscal
year.

-16-
<PAGE>

Differences Between the F&C and Interim Advisory Agreements and the New Advisory
Agreement

The New Advisory Agreement is substantially similar to the F&C Advisory
Agreement and Interim Advisory Agreement. While the F&C and Interim Advisory
Agreements contemplate a single adviser, the New Advisory Agreement contemplates
the delegation of certain portfolio management and other responsibilities to
sub-advisers, under the control and supervision of BIA.

Co-Administration Agreement

On March 22, 1999, the Fund entered into a Co-Administration Agreement with
BAS. BAS is owned by the Members, who, as indicated above, are also the owners
of BIA and are Horejsi Affiliates. The address of BAS, like that of BIA and the
Fund, is 1680 38th Street, Suite 800, Boulder, Colorado 80301.

Under the Co-Administration Agreement, BAS provides certain administrative
and executive management services to the Fund including: providing the Fund's
principal offices and executive officers, overseeing the operations of the Fund,
overseeing and administering all contracted service providers, making
recommendations to the Board regarding policies of the Fund, conducting
shareholder relations, authorizing expenses and numerous other tasks. Pursuant
to the Co-Administration Agreement, the Fund pays BAS a monthly fee, calculated
at an annual rate of .10% of the value of the Fund's average monthly net assets.

Required Vote

Approval of the New Advisory Agreement requires a Majority Fund Vote.

As stated above, the Horejsi Affiliates will vote their Shares in favor of
Proposal 1.

THE BOARD OF DIRECTORS, INCLUDING ALL OF THE NON-INTERESTED DIRECTORS,
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" APPROVAL OF THE NEW ADVISORY
AGREEMENT.

PROPOSAL 2: TO APPROVE OR DISAPPROVE A PROPOSED SUB-ADVISORY
AGREEMENT AMONG BOULDER INVESTMENT ADVISERS, L.L.C., THE FUND
AND STEWART INVESTMENT ADVISERS, LTD.

Summary of Proposal

-17-
<PAGE>

continue for successive annual periods thereafter, provided its continuance is
approved at least annually by (a) a majority of the Board of Directors who are
not "interested persons" of the Fund (as that term is defined in the 1940 Act)
and a majority of the full Board of Directors or (b) a majority of the
outstanding voting securities of the Fund (as defined in the 1940 Act).

Information about SIA

Stewart R. Horejsi, an employee of SIA and its primary investment manager,
will be responsible for the day-to-day management of the Fund's assets advised
by SIA. Mr. Horejsi has been a Director of the Fund since July 1997; General
Manager, Brown Welding Supply, LLC, since April 1994; Director, Sunflower Bank;
and the President or Manager of various subsidiaries of HI, since June, 1986.
Mr. Horejsi has been the investment adviser for the Horejsi family trusts (i.e.,
the Brown Trust, the EH Trust, the SRH Trust and certain related trusts) since
1982. As of June 14, 1999, the size of these trusts' common stock portfolio is
approximately $450 million. Mr. Horejsi has been the Director and President of
the Horejsi Family Charitable Foundation, Inc. since 1997. Mr. Horejsi received
a Masters Degree in Economics from Indiana University in 1961 and a Bachelor of
Science Degree in Industrial Management from the University of Kansas in 1959.

The principal place of business for SIA is Bellerive House, Queen Street,
St. Peter, Barbados. SIA, which is a Barbados international business company
incorporated on ______ __, 19__, is wholly owned by the Stewart West Indies
Trust, a South Dakota trust established by Stewart R. Horejsi in 1996 primarily
to benefit his issue. SIA, which is registered as an investment adviser under
the Investment Advisers Act of 1940, has not previously served as adviser to a
registered investment company or managed assets on a discretionary or
non-discretionary basis except for Horejsi family interests. However, as
described above, Stewart R. Horejsi, a principal of SIA, has extensive
experience managing common stocks for his family interests.

SIA is not a U.S. company and substantially all of its assets are located
outside the United States. As a result, it may be difficult for investors to
realize judgments of courts of the United States predicated upon civil
liabilities under federal securities laws of the United States. The Fund has
been advised that there is substantial doubt as to the enforceability in
Barbados of such civil remedies and criminal penalties as are afforded by the
federal securities laws of the United States.

The executive officers and directors of SIA and the principal occupation of
each are set forth below:

-18-
<PAGE>

- --------------------------------------------------------------------------------
Name and Position with SIA Principal Occupation

- --------------------------------------------------------------------------------
Glade Christensen - President and
Resident General Sales Manager

- --------------------------------------------------------------------------------
Stephen C. Miller - Vice President and President, Chief Executive Officer
Secretary and Chairman of the Board of the
Fund; vice president and Secretary
of SIA; Director and President of
HI, since 1997; Director, Vice
President and Assistant Secretary
of Badlands; Counsel to Krassa,
Madsen & Miller, LLC since 1991;
and Manager of BAS

- --------------------------------------------------------------------------------
Laura Rhodenbaugh - Treasurer Secretary of BAS; Treasurer of SIA;
Secretary and Treasurer of various
subsidiaries of HI.

- --------------------------------------------------------------------------------

The SIA Sub-Advisory Agreement

A copy of the SIA Sub-Advisory Agreement is set forth as Exhibit B to this
Proxy Statement. If approved by Shareholders, the SIA Sub-Advisory Agreement
will become effective on such date of such approval and continue initially for a
two-year period and continue for successive annual periods thereafter, provided
such continuance is approved at least annually by (a) a majority of the Board of
Directors who are "not-interested persons" of the Fund (as that term is used in
the 1940 Act) and a majority of the full Board of Directors or (b) a majority of
the outstanding voting securities of the Fund (as defined in the 1940 Act). The
SIA Sub-Advisory Agreement is terminable, without penalty, on 60 days' written
notice by the Board of Directors of the Fund, or by SIA upon written notice to
the other. The SIA Sub-Advisory Agreement will terminate automatically upon its
assignment (as defined in the 1940 Act).

Under the SIA Sub-Advisory Agreement, SIA is responsible for making
investment decisions for the portion of the Fund's assets invested in common
stocks and cash equivalents held for investment in common stocks (the "Common
Stock Portion"), supplying investment research and portfolio management services
with respect to the Common Stock Portion and placing purchase and sale orders
for portfolio transactions with respect to the Common Stock Portion. SIA will
also be responsible for making asset allocation decisions for the Fund (i.e.,
determining the portion of the Fund's assets to be invested from time to time in
common stocks, fixed income securities and cash equivalents), and determining
the extent and nature of the Fund's use of leverage. The SIA Sub-Advisory
Agreement also provides that SIA will bear all expenses in connection with its
performance. Pursuant to the SIA Sub-Advisory Agreement, SIA would receive from
BIA an annual fee, payable monthly, in the amount agreed to among the parties
from time to time. For the one-year period commencing upon the effective date
SIA would receive from BIA an annual fee, payable monthly, of 80% of the
advisory fee retained by BIA from payment received pursuant to the New Advisory
Agreement after BIA had made required payments to any other sub-adviser.

-19-
<PAGE>

The SIA Sub-Advisory Agreement provides that SIA will be indemnified by the
Fund for losses, claims and expenses not caused by SIA's willful misfeasance,
bad faith or gross negligence on its part in the performance of its duties or
from reckless disregard by it of its obligations and duties under the Agreement.

The terms of the SIA Sub-Advisory Agreement are substantially similar to
those of the New Advisory Agreement except for the names of the parties, the
fees to be paid and absence of provisions in the SIA Sub-Advisory Agreement
relating to retention, monitoring and payment of sub-advisers.

Required Vote

Approval of the SIA Sub-Advisory Agreement requires a Majority Fund Vote.

As stated above, the Horejsi Affiliates will vote their Shares in favor of
Proposal 2.

THE BOARD OF DIRECTORS, INCLUDING ALL OF THE NON-INTERESTED DIRECTORS,
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" APPROVAL OF THE SIA SUB-ADVISORY
AGREEMENT.

PROPOSAL 3: TO APPROVE OR DISAPPROVE A PROPOSED SUB-ADVISORY
AGREEMENT AMONG BOULDER INVESTMENT ADVISERS, L.L.C., THE FUND
AND SPECTRUM ASSET MANAGEMENT, INC.

Summary of Proposal

For the reasons and based on an extensive analysis of the factors described
below, all of the Directors of the Fund, including the non-interested Directors,
have determined, subject to approval by the shareholders of the Fund, to approve
the execution of a new sub-advisory agreement among Spectrum, BIA and the Fund.
At a meeting of the Board of Directors held on June 3, 1999, the Board of
Directors, including the "non-interested" Directors, approved the Spectrum
Sub-Advisory Agreement. If approved by shareholders, the Spectrum Sub-Advisory
Agreement will become effective on such date of approval and will continue
initially for a two-year period and will continue for successive annual periods
thereafter, provided its continuance is approved at least annually by (a) a
majority of the Board of Directors who are not "interested persons" of the Fund
(as that term is defined in the 1940 Act) and a majority of the full Board of
Directors or (b) a majority of the outstanding voting securities of the Fund (as
defined in the 1940 Act).

Information about Spectrum

Founded in 1987, Spectrum is a Connecticut corporation registered as an
investment adviser under the Investment Advisers Act of 1940. It is also
registered as a broker-dealer with the Securities and Exchange Commission (the
"SEC") and is a member firm of the National Association of Securities Dealers,
Inc., as well as a commodity trading adviser registered with the Commodity
Futures Trading Commission and the National Futures Association. Spectrum is a
wholly-owned subsidiary of United Asset Management Corp., a Delaware corporation

-20-
<PAGE>

headquartered in Boston, Massachusetts. Spectrum, which specializes in managing
diversified hedged investment-grade preferred stock portfolios, has its
principal offices at 4 High Ridge Park, Stamford, Connecticut 06905. As of May
31, 1999, Spectrum managed approximately $2 billion in assets, mainly for banks,
pension and profit-sharing plans, corporations and other institutions.

Spectrum is the investment adviser to the SAMI Preferred Stock Fund, a
registered investment company that, as of May 31, 1999, had assets of
approximately $20 million. Spectrum receives an annual advisory fee from that
fund equal to .20% of average daily net assets.

Since its inception, the Fund has not executed any portfolio transactions
through an affiliate of the Fund or its investment adviser. If Spectrum is
approved as sub-adviser to the Fund, the Fund may execute portfolio transactions
through Spectrum, subject to compliance with the 1940 Act.

Evaluation by the Board

On June 3, 1999 the Board of Directors of the Fund met to consider, among
other things, the Spectrum Sub-Advisory Agreement. The Board reviewed various
materials furnished by Spectrum. The materials described, among other matters,
Spectrum, Spectrum's market performance and past experience in managing hedged
preferred stock portfolios, the nature of Spectrum's proposed services, its
methods of operation, financial condition and investment philosophy. The Board
also considered Spectrum's ability to advise BIA and the Fund and invest the
Fund's assets in preferred stocks. Representatives of Spectrum discussed with
the Board the written materials and responded to questions from the Board.

The Board based its decision to approve the Spectrum Sub-Advisory Agreement
on a number of factors, particularly the level of experience Spectrum has
managing preferred stock portfolios, and hedging those portfolios using options
on futures, the similarity between Spectrum's investment approach and that
historically followed by the Fund and Spectrum's knowledge of auction rate
preferred stocks like the MMP(R).

Spectrum Sub-Advisory Agreement

A copy of the Spectrum Sub-Advisory Agreement is set forth as Exhibit C to
this Proxy Statement. If approved by Shareholders, the Spectrum Sub-Advisory
Agreement will become effective on such date of such approval and continue
initially for a two-year period and continue for successive annual periods
thereafter, provided such continuance is approved at least annually by (a) a
majority of the Board of Directors who are "not-interested persons" of the Fund
(as that term is used in the 1940 Act) and a majority of the full Board of
Directors or (b) a majority of the outstanding voting securities of the Fund (as
defined in the 1940 Act). The Spectrum Sub-Advisory Agreement is terminable,
without penalty, on 60 days' written notice by the Board of Directors of the
Fund, or by Spectrum upon written notice to the other. The Spectrum Sub-Advisory
Agreement will terminate automatically upon its assignment (as defined in the
1940 Act).

-21-
<PAGE>

Under the Spectrum Sub-Advisory Agreement, Spectrum is responsible for
making investment decisions for the portion of the Fund's assets invested in
preferred stocks (including so-called "hybrid" or taxable preferreds having
certain characteristics of debt securities), related hedging instruments, and
cash and cash equivalents held for investment in such securities (the "Preferred
Portion"), supplying investment research and portfolio management services, and
placing purchase and sale orders for portfolio transactions, all with respect to
the Preferred Portion. The Spectrum Sub-Advisory Agreement also provides that
Spectrum will bear all expenses in connection with its performance. Pursuant to
the Spectrum Sub-Advisory Agreement, Spectrum would receive an annual fee,
payable monthly, in the amount agreed to among the parties from time to time.
For the one-year period commencing upon the effective date Spectrum would
receive an annual fee, payable monthly, of .45% of the average monthly net
assets of the Preferred Portion up to $50 million and .40% on the average
monthly net assets of the Preferred Portion over $50 million, out of the
advisory fee payable to BIA.

The Spectrum Sub-Advisory Agreement provides that Spectrum will be
indemnified by the Fund for losses, claims and expenses not caused by Spectrum's
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under the Agreement.

The terms of the Spectrum Sub-Advisory Agreement are substantially similar
to those of the SIA Sub-Advisory Agreement except for the names of the parties,
the fees to be paid and the fact that SIA will provide advice regarding common
stocks, asset allocation and leverage generally and Spectrum will provide advice
about preferreds and related hedging instruments.

____________ will be responsible for the day-to-day management of the
Preferred Portion. The executive officers and directors of Spectrum, including
Mr. _________, and the principal occupation of each are set forth below:

- --------------------------------------------------------------------------------
Name and Position with Spectrum Principal Occupation

- ------------------------------------------------------------ -------------------
Scott T. Fleming - Chairman and Principal of Spectrum
Chief Financial Officer

- ------------------------------------------------------------ -------------------
Mark A. Lieb - President and Director Principal of Spectrum

- --------------------------------------------------------------------------------
Bernard M. Sussman - [Principal] Principal of Spectrum; Limited
Partner of Goldman Sachs & Co.
- --------------------------------------------------------------------------------

Required Vote

Approval of the Spectrum Sub-Advisory Agreement requires a Majority Fund
Vote.

THE BOARD OF DIRECTORS, INCLUDING ALL OF THE NON-INTERESTED DIRECTORS,
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" APPROVAL OF THE SPECTRUM
SUB-ADVISORY AGREEMENT.

-22-
<PAGE>

PROPOSAL 4: TO APPROVE OR DISAPPROVE A CHANGE TO THE
FUND'S INVESTMENT OBJECTIVE INCLUDING A RELATED AMENDMENT TO
THE NAME OF THE FUND

Summary of Proposal

The Board of Directors has proposed that the Fund's investment objective be
changed to total return. Currently, the Fund's investment objective is high
current income for holders of its Common Stock consistent with preservation of
capital. Total return will be comprised of long-term capital appreciation from
the Fund's common stock investments and income from the Fund's fixed income
stock holdings.

Assuming that this change is approved and subject to any applicable rating
agency guidelines, certain other non-fundamental, Board-approved policy changes
will also be implemented:

1. The requirement to invest at least 65% of the Fund's assets in preferred
stocks will be replaced with a requirement to invest at least 80% of the
Fund's assets in common and fixed income securities, except during
temporary defensive periods.

2. The 15% limit on common stock investments will be deleted.

3. The Fund may invest in common stocks of U.S. or non-U.S. issuers of any
size and may invest up to 10% of its assets in real estate investment
trusts.

4. The Fund may invest without limit in non-dividend paying equity securities.

5. The Fund may invest up to 10% of its assets in other registered investment
companies.

The Fund's other investment policies will remain unchanged, including,
without limitation, the Fund's authority to invest in futures and options,
restricted securities, short sales "against the box" and zero coupon securities.

The effect of the change in objective on the Fund's dividends and use of
leverage is described above (see "Overview--Proposed Changes To Investment
Focus").

Impact on MMP(R). As stated above (see "Overview--Proposed Changes To
Investment Focus--Rating Agency Guidelines And Asset Coverage Requirements"),
the Fund has received a letter from Moody's stating that its rating on the
MMP(R) will not be affected by the proposed changes to the Fund's investment
focus or management. However, it is not possible to predict whether holders of
MMP(R) will have an adverse reaction to the change in the Fund's investment
objective or to any one or more of the other Proposals in this Proxy Statement.
If this were to occur, MMP(R) holders might submit sell orders in subsequent
auctions in excess of buy orders received. In this event, the rate on the MMP(R)
for the relevant subsequent rate period would be the Maximum Rate. This Maximum
Rate is defined, generally, as 150% times the "AA" Composite Commercial Paper
Rate on the relevant auction data. As of July 23, 1999 the Maximum Rate would
have been __%. Alternatively, the rate on the MMP(R) could increase as

-23-
<PAGE>

holders seek a higher rate to compensate for the perceived increased risk
associated with a common stock portfolio.

Name Change. The Board of Directors has recommended that Article II of the
Fund's Articles of Incorporation be amended to change the Fund's name to
"Boulder Total Return Fund, Inc." The Fund will also change its New York Stock
Exchange ticker symbol to "__".

Required Vote

Approval of the section of this Proposal regarding a change in the Fund's
investment objective would require a Majority Fund-wide Vote and a separate
Majority MMP Vote. Approval of the section of this Proposal regarding a change
in the Fund's name would require an Absolute Majority of the Fund vote.
Consequently, approval of this Proposal requires an Absolute Majority of the
Fund vote, which is the highest general vote requirement, and a separate
Majority MMP Vote.

THE BOARD OF DIRECTORS, INCLUDING ALL OF THE NON-INTERESTED DIRECTORS,
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE CHANGE TO THE FUND'S INVESTMENT
OBJECTIVE.

PROPOSAL 5: TO APPROVE OR DISAPPROVE AN AMENDMENT TO THE
FUND'S FUNDAMENTAL INVESTMENT RESTRICTION ON BORROWING

Summary of Proposal

The Board of Directors has proposed an amendment to the Fund's fundamental
investment restriction regarding borrowing. Currently, one of the Fund's
investment restrictions provides that the Fund may not:

Borrow money, except for temporary or emergency purposes, or in connection
with repurchases of its shares or for clearance of transactions, and then
only in amounts not exceeding 10% of its total assets (not including the
amount borrowed) and as otherwise described in this Prospectus. When the
Fund's borrowings exceed 5% of the value of its total assets, the Fund will
not make any additional investments.

As amended, this restriction would provide that the Fund may not:

Borrow except as permitted by law; provided that, as long as the MMP(R) are
outstanding, the Fund may not borrow except (1) (a) for temporary or
emergency purposes or (b) in connection with repurchases of its shares or
(c) for clearance of transactions, and then only in amounts not exceeding
10% of its total assets (not including the amount borrowed) and as
otherwise described in this Prospectus or (2) for the purpose of redeeming
all of the outstanding MMP(R). When the Fund's borrowings under (1)(a), (b)
and (c) exceed 5% of the value of its total assets, the Fund will not make
any additional investments.

-24-
<PAGE>

Reasons for Proposal

The proposed amendment maintains the current borrowing limit for so long as
the MMP(R) is outstanding except for a borrowing the proceeds of which would be
used to redeem all outstanding shares of MMP(R). The amount of this borrowing
would be limited to the maximum amount permitted by law, which is the limit
contained in Section 18 of the 1940 Act. That limit is one-third of the Fund's
total assets (including the amount borrowed). Depending on how such a borrowing
might be structured, the borrowing may, in certain circumstances, require
shareholder approval. The Board of the Fund has no current intention to redeem
the MMP(R), although it reserves the right to do so in the future.

The proposed change to the borrowing restriction protects MMP(R) holders
from the creation of debt obligations that would place the obligee in a position
senior to the MMP(R) in right of payment unless the debt is created for the very
purpose of redeeming the MMP(R). After the MMP(R) is fully redeemed, the Fund's
ability to borrow would not be limited except by the 1940 Act or other
applicable legal limits. The Fund could then borrow from banks or other
entities, such as through margin purchases or reverse repurchase agreements. The
Board believes that the proposed amendment gives the Fund added flexibility to
borrow in order to increase the Fund's return or to redeem the MMP(R).

Risks Associated With Leverage. After the MMP(R) is redeemed, the Fund will
be authorized to borrow money from banks and other entities in an amount equal
to up to 33-1/3% of the Fund's total assets (including the amount borrowed),
less all liabilities and indebtedness other than the borrowing, and may use the
proceeds of the borrowings for investment purposes. Borrowings create leverage,
which is a speculative characteristic. Although the Fund may borrow frequently,
it will do so only when SIA believes that borrowing will benefit the Fund after
taking into account considerations such as the costs of the borrowing and the
likely investment returns on the securities purchased with the borrowed monies.
The extent to which the Fund will borrow will depend upon the availability of
credit. No assurance can be given that the Fund will be able to borrow on terms
acceptable to the Fund and SIA.

Borrowing by the Fund will create an opportunity for increased return but,
at the same time, will involve special risk considerations Leveraging resulting
from borrowing will magnify declines as well as increases in the net asset value
of the Common Stock and in the net return on the Fund's portfolio. Although the
principal of the Fund's borrowings will be fixed, the Fund's assets may change
in value during the time a borrowing is outstanding, thus increasing exposure to
capital risk. To the extent the return derived from the assets obtained with
borrowed funds exceeds the interest and other expenses that the Fund will have
to pay, the Fund's net return will be greater than if borrowing was not used.
Conversely, however, if the return from the assets obtained with borrowed funds
is not sufficient to cover the cost of borrowing, the net return of the Fund
will be less than if borrowings were not used, and therefore the amount
available for distribution to the Fund's shareholders as dividends will be
reduced.

The Fund expects that some or all of its borrowings may be made on a
secured basis. If they are, the Fund's custodian will either segregate the
assets securing the Fund's borrowings for the benefit of the Fund's lenders or
arrangements will be made with a suitable sub-custodian,

-25-
<PAGE>

which may include a lender. If the assets used to secure the borrowing decrease
in value, the Fund may be required to pledge additional collateral to the lender
in the form of cash or securities to avoid liquidation of those assets. The
rights of any lenders to the Fund to receive payments of interest on and
repayments of principal of borrowings will be senior to the rights of the Fund's
shareholders, and the terms of the Fund's borrowings may contain provisions that
limit certain activities of the Fund and could result in precluding the purchase
of instruments that the Fund would otherwise purchase.

The Fund may borrow by entering into reverse repurchase agreements with any
member bank of the Federal Reserve System and any broker-dealer or any foreign
bank that has been determined by the investment adviser to be creditworthy.
Under a reverse repurchase agreement, the Fund would sell securities and agree
to repurchase them at a mutually agreed date and price. At the time the Fund
enters into a reverse repurchase agreement, it will establish and maintain a
segregated account, with its custodian or a designated sub-custodian containing
cash or liquid obligations having a value not less than the repurchase price
(including accrued interest). Reverse repurchase agreements involve the risk
that the market value of the securities purchased with the proceeds of the sale
of securities received by the Fund may decline below the price of the securities
the Fund is obligated to repurchase. In the event the buyer of securities under
a reverse repurchase agreement files for bankruptcy or becomes insolvent, the
buyer or its trustee or receiver may receive an extension of time to determine
whether to enforce the Fund's obligation to repurchase the securities, and the
Fund's use of the proceeds of the reverse repurchase agreement may effectively
be restricted pending the decision. Reverse repurchase agreements will be
treated as borrowings for purposes of calculating the Fund's borrowing
limitation.

The Fund may, in addition to engaging in the transactions described above,
borrow money from banks for temporary or emergency purposes (including, for
example, clearance of transactions, share repurchases, tender offers or payments
of dividends to shareholders) in an amount not exceeding 5% of the value of the
Fund's total assets (including the amount borrowed).

Required Vote

Approval of this Proposal requires a Majority Fund Vote and a separate
Majority MMP Vote.

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR PROPOSAL NO.
5.

PROPOSAL 6: TO APPROVE OR DISAPPROVE AN AMENDMENT TO THE
FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
REGARDING THE ISSUANCE OF SENIOR SECURITIES

Summary of Proposal

The Board of Directors has proposed an amendment to the Fund's fundamental
investment restriction regarding the issuance of senior securities. Currently,
one of the Fund's fundamental investment restrictions provides that the Fund may
not:

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<PAGE>

Issue senior securities other than preferred stock.

As proposed to be amended, the restriction would provide that the Fund may
not:

Issue senior securities other than preferred stock or as permitted by the
Fund's borrowing limitation.

Reasons for the Proposal

As amended, the restriction would permit the Fund to issue debt as well as
preferred stock in a manner consistent with the Fund's restriction on borrowing.
In effect, this would give the Fund broad flexibility to leverage its Common
Stock using debt (including margin borrowing) as well as preferred stock after
the MMP(R) has been retired. While the Board believes that leveraging the Fund
using the MMP(R) is appropriate under current market conditions, they also
believe that debt could be an attractive alternative in certain circumstances.

The risks associated with leverage are described above under Proposal 5.

Required Vote

Approval of this Proposal requires a Majority Fund Vote and a separate
Majority MMP Vote.

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR PROPOSAL NO.
6.

PROPOSAL 7: TO APPROVE OR DISAPPROVE AN AMENDMENT TO THE
FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
REGARDING INDUSTRY CONCENTRATION

Summary of Proposal

The Fund has a fundamental policy of concentrating its investments in the
banking and utilities industries. This means that, under normal market
conditions, the Fund will invest at least 25% of its assets in securities of
issuers in each of these industries. The Board of Directors has proposed an
amendment to the Fund's fundamental investment restriction regarding industry
concentration that would remove the requirement to concentrate its investments
in the banking and utilities industries. Currently, one of the Fund's
fundamental investment restrictions provides that the Fund may not:

Invest more than 25% of its total assets in the securities of issuers in
any single industry other than each of the utilities industry and the
banking industry, except that this limitation will not be applicable to the
purchase of Government Securities.

The proposed amendment would delete the phrase "other than each of the
utilities industry and the banking industry" from this restriction.

-27-
<PAGE>

Reasons for Proposal

The effect of the proposed change would be to remove the Fund's policy of
concentrating its investments in the banking and utilities industries and to
preclude the Fund from investing more than 25% of its assets in issuers in any
single industry. Currently, __% of the Fund's assets are in the utilities
industry and __% are in the banking industry. While this concentration policy is
appropriate for a fund investing primarily in preferred stocks, since a large
number of preferred stocks tend to be issued by companies in these two
industries, the policy imposes an unnecessary and inflexible restriction for a
fund with a broader investment mandate. The removal of the requirement to
concentrate in the banking and utilities industries mitigates the risk to the
Fund of circumstances adversely affecting those industries. If Proposal 7 is
approved by shareholders, the Fund intends to reduce its holdings in each of the
banking and utilities industries to below 25% within [three to six] months.

Required Vote

Approval of this Proposal requires a Majority Fund Vote and a separate
Majority MMP Vote.

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR PROPOSAL NO.
7.

PROPOSAL 8: TO APPROVE OR DISAPPROVE THE DELETION OF THE
FUND'S FUNDAMENTAL INVESTMENT RESTRICTION PROHIBITING INVESTING
FOR THE PURPOSE OF CONTROL OR MANAGEMENT OF ANY COMPANY

Summary of Proposal

The Board of Directors has proposed that the Fund's fundamental investment
restriction prohibiting the Fund from investing for the purpose of control or
management of any company be deleted. Currently, one of the Fund's fundamental
investment restrictions provides that the Fund may not:

Make any investments for the purpose of exercising control or management of
any company.

Reasons for Proposal

The proposed deletion would allow the Fund to participate on an investee
company's board or advise it on operations or management. This type of
assistance, which might enhance the value of the Fund's investment in a company,
could be deemed to be precluded by the current restriction. The proposed
deletion would give the Fund greater investment flexibility in appropriate
circumstances.

-28-
<PAGE>

Required Vote

Approval of this Proposal requires a Majority Fund Vote and a separate
Majority MMP Vote.

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR PROPOSAL NO.
8.

ADDITIONAL INFORMATION

Submission of Shareholder Proposals

All proposals by shareholders of the Fund that are intended to be presented
at the Fund's next Annual Meeting of Shareholders to be held in 2000 must be
received by the Fund for consideration for inclusion in the Fund's proxy
statement relating to the Annual Meeting no later than November 9, 1999.

Transfer Agent and Investment Administrator

Investor Services Group acts as the transfer agent and administrator to the
Fund and is located at 101 Federal Street, Boston, Massachusetts 02110.

Appraisal Rights

Under Maryland law, there are no rights of appraisal or any similar rights
of dissenters with respect to any matter to be acted upon at the Special
Meeting.

Compliance with the Securities Exchange Act of 1934

Section 16(a) of the 1934 Act requires the Fund's Directors and officers,
certain persons affiliated with F&C and persons who own more than 10% of a
registered class of the Fund's securities, to file reports of ownership and
changes of ownership with the SEC and the New York Stock Exchange. Directors,
officers and greater-than-10% shareholders are required by SEC regulations to
furnish the Fund with copies of all Section 16(a) forms they file. Based solely
upon the Fund's review of the copies of such forms it receives and written
representations from certain of such persons, the Fund believes that through the
date hereof all such filing requirements applicable to such persons were
complied with.

OTHER MATTERS TO COME BEFORE THE SPECIAL MEETING

The Fund does not intend to present any other business at the Special
Meeting, nor are they aware that any shareholder intends to do so. If, however,
any other matters are properly brought before the Special Meeting, the persons
named in the accompanying form of proxy will vote thereon in accordance with
their judgment.

-29-
<PAGE>

- --------------------------------------------------------------------------------
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT
EXPECT TO ATTEND THE SPECIAL MEETING ARE THEREFORE URGED TO COMPLETE, SIGN, DATE
AND RETURN ALL PROXY CARDS AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
- --------------------------------------------------------------------------------

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<PAGE>

Exhibit A

INVESTMENT ADVISORY AGREEMENT

THIS INVESTMENT ADVISORY AGREEMENT (this "Agreement") is made as of the
27th day of August, 1999, by and among BOULDER INVESTMENT ADVISERS, L.L.C., a
Colorado limited liability company (the "Adviser"), and PREFERRED INCOME
MANAGEMENT FUND INCORPORATED, a Maryland corporation (the "Fund").

1. Investment Description; Appointment. The Fund desires to employ its
capital by investing and reinvesting in investments of the kind and in such
manner and to such extent as may from time to time be approved by the Board of
Directors of the Fund. The Fund desires to employ and hereby appoints the
Adviser to act as investment adviser to the Fund. Adviser hereby accepts the
appointment and agrees to furnish the services described herein for the
compensation set forth below.

2. Services as Investment Adviser. Subject to the supervision and direction
of the Board of Directors of the Fund, the Adviser will (a) act in accordance
with the Investment Company Act of 1940 (the "1940 Act") and the Investment
Advisers Act of 1940, as the same may be from time to time amended, (b) manage
the Fund's portfolio on a discretionary basis in accordance with its investment
objectives and policies, (c) make investment decisions and exercise voting
rights in respect of portfolio securities for the Fund, (d) place purchase and
sale orders on behalf of the Fund, (e) employ, at its own expense, professional
portfolio managers and securities analysts to provide research services to the
Fund, (f) determine the portion of the Fund's assets to be invested, from time
to time, in various asset classes (e.g., common stocks, fixed income securities,
cash equivalents), (g) determine the portion of the Fund's assets to be
leveraged, from time to time, and the form that such leverage will take, and (h)
monitor and evaluate the services provided by the Fund's investment
sub-adviser(s), if any, under the terms of the applicable investment
sub-advisory agreement(s).

Subject to the approval of the Board of Directors of the Fund and where
required, the Fund's shareholders, the Adviser may engage an investment
sub-adviser or sub-advisers to provide advisory services in respect of all or a
portion of the Fund's assets (the "Sub-Advised Portion") and may delegate to
such investment sub-adviser(s) the responsibilities described in subparagraphs
(b), (c), (d) (e), (f) and (g) above and Paragraph 4 below with respect to the
Sub-Advised Portion. In the event that an investment sub-adviser's engagement
has been terminated, the Adviser shall be responsible for furnishing the Fund
with the services required to be performed by such investment sub-adviser(s)
under the applicable investment sub-advisory agreements or arranging for a
successor investment sub-adviser(s) to provide such services under terms and
conditions acceptable to the Fund and the Fund's Board of Directors and subject
to the requirements of the 1940 Act. In providing these services, the Adviser
will provide investment research and supervision of the Fund's evaluation and,
if appropriate, sale and reinvestment of the Fund's assets. In addition, the
Adviser will furnish the Fund with whatever statistical information the Fund may
reasonably request with respect to the securities that the Fund may hold or
contemplate purchasing.

3. Brokerage. In executing transactions for the Fund and selecting brokers
or dealers, the Adviser will use its best efforts to seek the best overall terms
available. In assessing

-31-
<PAGE>

the best overall terms available for any Fund transaction, the Adviser will
consider all factors it deems relevant including, but not limited to, breadth of
the market in the security, the price of the security, the financial condition
and execution capability of the broker or dealer and the reasonableness of any
commission for the specific transaction and on a continuing basis. In selecting
brokers or dealers to execute any transaction and in evaluating the best overall
terms available, the Adviser may consider the brokerage and research services
(as those terms are defined in Section 28(e) of the Securities Exchange Act of
1934) provided to the Fund and/or other accounts over which the Adviser or any
affiliate exercises investment discretion.

4. Information Provided to the Fund. The Adviser will use its best efforts
to keep the Fund informed of developments materially affecting the Fund, and
will, on its own initiative, furnish the Fund from time to time with whatever
information the Adviser believes is appropriate for this purpose.

5. Standard of Care. The Adviser shall exercise its best judgment in
rendering the services described herein. The Adviser shall not be liable for any
error of judgment or mistake of law or omission or any loss suffered by the Fund
in connection with the matters to which this Agreement relates, provided that
nothing herein shall be deemed to protect or purport to protect the Adviser
against any liability to the Fund to which the Adviser would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement ("disabling conduct"). The Fund will
indemnify the Adviser against, and hold it harmless from, any and all losses,
claims, damages, liabilities or expenses (including reasonable counsel fees and
expenses), including any amounts paid in satisfaction of judgments, in
compromise or as fines or penalties, not resulting from disabling conduct by the
Adviser. Indemnification shall be made only following (i) a final decision on
the merits by a court or other body before whom the proceeding was brought that
the Adviser was not liable by reason of disabling conduct, or (ii) in the
absence of such a decision, a reasonable determination, based upon a review of
the facts, that the Adviser was not liable by reason of disabling conduct by (a)
the vote of a majority of the Directors of the Fund who are neither "interested
persons" of the Fund nor parties to the proceeding ("disinterested non-party
Directors"), or (b) independent legal counsel in a written opinion. The Adviser
shall be entitled to advances from the Fund for payment of the reasonable
expenses incurred by it in connection with the matter to which it is seeking
indemnification in the manner and to the fullest extent permissible under the
law. The Adviser shall provide to the Fund a written affirmation of its good
faith belief that the standard of conduct necessary for indemnification by the
Fund has been met and a written undertaking to repay any such advance if it
should ultimately be determined that the standard of conduct has not been met.
In addition, at least one of the following additional conditions shall be met:
(a) the Adviser shall provide a security in form and amount acceptable to the
Fund for its undertaking; (b) the Fund is insured against losses arising by
reason of the advance; or (c) a majority of disinterested non-party Directors,
or independent legal counsel, in a written opinion, shall have determined, based
on a review of facts readily available to the Fund at the time the advance is
proposed to be made, that there is reason to believe that the Adviser will
ultimately be found to be entitled to indemnification.

A-2
<PAGE>

6. Compensation. In consideration of the services rendered pursuant to this
Agreement, the Fund will pay the Adviser an annual fee, such amount to be paid
monthly, in the amount agreed to among the parties from time to time. For the
one-year period commencing upon the "Effective Date" (as defined below), the
Adviser will be paid by the Fund according to the Fee Schedule attached hereto
as "Exhibit A". The fee payable to Adviser for any period shorter than a full
calendar month shall be prorated according to the proportion that such payment
bears to the full monthly payment.

7. Expenses. The Adviser will bear all expenses in connection with the
performance of its services under this Agreement, including the fees payable to
any investment sub-adviser engaged pursuant to Paragraph 2 of this Agreement.
The Fund will bear certain other expenses to be incurred in its operation,
including organizational expenses, taxes, interest, brokerage costs and
commissions and stock exchange fees; fees of Directors of the Fund who are not
also officers, directors or employees of Adviser; Securities and Exchange
Commission fees; state Blue Sky qualification fees; charges of any custodian,
any sub-custodians and transfer and dividend-paying agents; insurance premiums;
outside auditing and legal expenses; costs of maintenance of the Fund's
existence; membership fees in trade associations; stock exchange listing fees
and expenses; litigation and other extraordinary or non-recurring expenses.

8. Services to other Companies or Accounts. The Fund understands that the
Adviser now acts, or may act in the future as an investment adviser to fiduciary
and other managed accounts or other trusts, or as investment adviser to one or
more other investment companies, and the Fund has no objection to the Adviser so
acting. The Fund understands that the persons employed by Adviser to assist in
the performance of the Adviser's duties hereunder will not devote their full
time to such service and nothing contained herein shall be deemed to limit or
restrict the right of the Adviser or any affiliate of the Adviser to engage in
and devote time and attention to other businesses or to render services of
whatever kind or nature.

9. Term of Agreement. This Agreement shall become effective as of the date
it is approved by a vote of a "majority" (as defined in the 1940 Act) of the
Fund's outstanding voting securities (the "Effective Date") and shall continue
for an initial two-year term and shall remain in effect from year to year so
long as such continuance is specifically approved by (a) a majority of the
Directors who are not "interested persons" of the Fund (as defined in the 1940
Act) and a majority of the full Board of Directors or (b) a majority of the
outstanding voting securities of the Fund (as defined in the 1940 Act). This
Agreement is terminable by a party hereto on sixty (60) days' written notice to
the other party. Any termination shall be without penalty and any notice of
termination shall be deemed given when received by the addressee.

10. No Assignment. This Agreement may not be transferred, assigned, sold or
in any manner hypothecated or pledged by any party hereto and will terminate
automatically in the event of its assignment (as defined in the 1940 Act). It
may be amended by mutual agreement, in writing, by the parties hereto.

11. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto.

A-3
<PAGE>

12. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Colorado.

13. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original for all purposes, and together shall
constitute one and the same Agreement.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.

THE ADVISER: FUND:

BOULDER INVESTMENT ADVISERS, L.L.C. PREFERRED INCOME MANAGEMENT FUND
a Colorado limited liability company INCORPORATED.
a Maryland corporation

By: ________________________________ By: _______________________________
Carl D. Johns Stephen C. Miller
Its: Assistant Manager Its: President

A-4
<PAGE>

Exhibit A

Fee Schedule

Adviser shall be paid after the end of each calendar month, a fee for the
previous month computed at the annual rate of 1.00% of the value of the Fund's
average monthly net assets; provided, that Adviser agrees to waive 0.40 of 1.00%
on the Fund's average monthly net assets until such time as 50% or more of the
Fund's net assets are invested in the Stock Portfolio. The Stock Portfolio
consists of all securities other than the preferred stocks (including so-called
"hybrid" or taxable preferreds, including those such as capital securities that
have certain characteristics of debt securities), related hedging instruments
and cash and cash equivalents held for investment in preferreds or related
hedging instruments under the management of Spectrum Asset Management, Inc. or
its successor (the "Preferred Stock Manager"). For the avoidance of doubt, it is
recognized that cash and cash equivalents held by the Preferred Stock Manager
for investment in preferreds or related hedging instruments will not be deemed
part of the Stock Portfolio, and that cash and cash equivalents that result from
liquidation of securities by the Preferred Stock Manager at the request of
Adviser for investment by the Adviser shall be a part of the Stock Portfolio.
(For purposes of calculating Adviser's fee, the Fund's average monthly net
assets will be deemed to be the average monthly value of the Fund's total assets
minus the sum of the Fund's liabilities (which liabilities exclude the aggregate
liquidation preference of the Fund's outstanding preferred stock and the amount
of any senior securities representing indebtedness) and dividends.)

<PAGE>

Exhibit B

INVESTMENT SUB-ADVISORY AGREEMENT

THIS INVESTMENT SUB-ADVISORY AGREEMENT (this "Agreement") is made as of the
27th day of August, 1999, by and among BOULDER INVESTMENT ADVISERS, L.L.C., a
Colorado limited liability company (the "Adviser"); and STEWART INVESTMENT
ADVISERS, LTD., a Barbados international business corporation (the
"Sub-Adviser"); and PREFERRED INCOME MANAGEMENT FUND INCORPORATED, a Maryland
corporation (the "Fund").

1. Investment Description; Appointment. The Adviser has been authorized by
the Board of Directors of the Fund to engage Sub-Adviser to assist in the
management of the Fund's assets. The Adviser desires to employ and hereby
appoints the Sub-Adviser to act as investment sub-adviser with respect to the
portion of the Fund's assets allocated to it for management by the Adviser from
time to time (the "Portfolio"). The Sub-Adviser hereby accepts the appointment
and agrees to furnish the services described herein for the compensation set
forth below.

2. Services as Sub-Adviser. Subject to the supervision and direction of the
Adviser, the Sub-Adviser will (a) act in accordance with the Investment Company
Act of 1940 (the "1940 Act") and the Investment Advisers Act of 1940, as the
same may be from time to time amended, (b) manage the Portfolio on a
discretionary basis in accordance with the objectives set forth in "Exhibit A"
hereto and such instructions as provided to the Sub-Adviser by the Adviser from
time to time, (c) make investment decisions and exercise voting rights in
respect of securities in the Portfolio, (d) place purchase and sale orders on
behalf of the Portfolio, (e) employ, at its own expense, professional portfolio
managers and securities analysts to provide research services to the Fund, (f)
determine the portion of the Fund's assets invested, from time to time, in
various asset classes (e.g., common stocks, fixed income securities, cash
equivalents) and (g) determine the portion of the Fund's assets to be leveraged,
from time to time, and the form that such leverage will take. In providing these
services, the Sub-Adviser will provide investment research and supervision of
the Portfolio's evaluation and, if appropriate, sale and reinvestment of the
Portfolio's assets. In addition, the Sub-Adviser will furnish the Adviser with
whatever statistical information the Adviser may reasonably request with respect
to the securities that the Portfolio may hold or contemplate purchasing.

3. Brokerage. In executing transactions for the Portfolio and selecting
brokers or dealers, the Sub-Adviser will use its best efforts to seek the best
overall terms available. In assessing the best overall terms available for any
Portfolio transaction, the Sub-Adviser will consider all factors it deems
relevant including, but not limited to, breadth of the market in the security,
the price of the security, the financial condition and execution capability of
the broker or dealer and the reasonableness of any commission for the specific
transaction and on a continuing basis. In selecting brokers or dealers to
execute any transaction and in evaluating the best overall terms available, the
Sub-Adviser may consider the brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Exchange Act of 1934) provided to the
Portfolio and/or other accounts over which the Sub-Adviser or any affiliate
exercises investment discretion.

B-1
<PAGE>

4. Information Provided to the Adviser and the Fund. The Sub-Adviser will
use its best efforts to keep the Adviser and the Fund informed of developments
materially affecting the Portfolio, and will, on its own initiative, furnish the
Adviser from time to time with whatever information the Sub-Adviser believes is
appropriate for this purpose.

5. Standard of Care. Sub-Adviser shall exercise its best judgment in
rendering the services described herein. The Sub-Adviser shall not be liable for
any error of judgment or mistake of law or omission or any loss suffered by the
Adviser or the Fund in connection with the matters to which this Agreement
relates, provided that nothing herein shall be deemed to protect or purport to
protect the Sub-Adviser against any liability to the Adviser or the Fund to
which the Sub-Adviser would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties of from reckless disregard by it of its obligations and duties under this
Agreement ("disabling conduct"). The Sub-Adviser will look to the Fund for
indemnification with respect to, and the Fund will indemnify Sub-Adviser
against, and hold it harmless from, any and all losses, claims, damages,
liabilities or expenses (including reasonable counsel fees and expenses),
including any amounts paid in satisfaction of judgments, in compromise or as
fines or penalties, not resulting from disabling conduct by Sub-Adviser.
Indemnification shall be made only following (i) a final decision on the merits
by a court or other body before whom the proceeding was brought that the
Sub-Adviser was not liable by reason of disabling conduct, or (ii) in the
absence of such a decision, a reasonable determination, based upon a review of
the facts, that the Sub-Adviser was not liable by reason of disabling conduct by
(a) the vote of a majority of the Directors of the Fund who are neither
"interested persons" of the Fund nor parties to the proceeding ("disinterested
non-party Directors"), or (b) independent legal counsel in a written opinion.
Sub-Adviser shall be entitled to advances from the Fund for payment of the
reasonable expenses incurred by it in connection with the matter to which it is
seeking indemnification in the manner and to the fullest extent permissible
under the law. The Sub-Adviser shall provide to the Fund a written affirmation
of its good faith belief that the standard of conduct necessary for
indemnification by the Fund has been met and a written undertaking to repay any
such advance if it should ultimately be determined that the standard of conduct
has not been met. In addition, at least one of the following additional
conditions shall be met: (a) the Sub-Adviser shall provide a security in form
and amount acceptable to the Fund for its undertaking; (b) the Fund is insured
against losses arising by reason of the advance; or (c) a majority of
disinterested non-party Directors of the Fund, or independent legal counsel, in
a written opinion, shall have determined, based on a review of facts readily
available to the Fund at the time the advance is proposed to be made, that there
is reason to believe that the Sub-Adviser will ultimately be found to be
entitled to indemnification.

6. Compensation. In consideration of the services rendered pursuant to this
Agreement, the Adviser will pay the Sub-Adviser an annual fee, such amount to be
paid monthly, in the amount agreed to among the parties from time to time. For
the one-year period commencing upon the "Effective Date" (as defined below), the
Sub-Adviser will be paid by the Adviser an annual fee according to the Fee
Schedule attached hereto as "Exhibit B". The fee payable to Sub-Adviser for any
period shorter than a full calendar month shall be prorated according to the
proportion that such payment bears to the full monthly payment.

B-2
<PAGE>

7. Expenses. Sub-Adviser will bear all expenses in connection with the
performance of its services under this Agreement. The Fund will bear certain
other expenses to be incurred in its operation, including investment advisory
fees, taxes, interest, brokerage costs and commissions and stock exchange fees;
fees of Directors of the Fund who are not also officers, directors or employees
of Adviser; Securities and Exchange Commission fees, state Blue Sky
qualification fees, charges of any custodian, any sub-custodians and transfer
and dividend-paying agents, insurance premiums, outside auditing and legal
expenses, costs of maintenance of the Fund's existence, membership fees in trade
associations, stock exchange listing fees and expenses, litigation and other
extraordinary or non-recurring expenses.

8. Services to other Companies or Accounts. The Adviser and the Fund
understand that the Sub-Adviser now acts, or may act, in the future as
investment adviser to fiduciary and other managed accounts or other trusts, or
as investment adviser to one or more other investment companies, and the Adviser
and the Fund have no objection to the Sub-Adviser so acting. The Adviser and the
Fund understand that the persons employed by Sub-Adviser to assist in the
performance of the Sub-Adviser's duties hereunder will not devote their full
time to such service and nothing contained herein shall be deemed to limit or
restrict the right of the Sub-Adviser or any affiliate of the Sub-Adviser to
engage in and devote time and attention to other businesses or to render
services of whatever kind or nature.

9. Term of Agreement. This Agreement shall become effective as of the date
it is approved by a vote of a "majority" (as defined in the 1940 Act) of the
Fund's outstanding voting securities (the "Effective Date") and shall continue
for an initial two-year term and shall remain in effect from year to year so
long as such continuance is specifically approved by (a) a majority of the
Directors who are not "interested persons" of the Fund (as defined in the 1940
Act) and a majority of the full Board of Directors or (b) a majority of the
outstanding voting securities of the Fund (as defined in the 1940 Act). This
Agreement is terminable by either any party hereto on sixty (60) days' written
notice to the other party. Any termination shall be without penalty and any
notice of termination shall be deemed given when received by the addressee.

11. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto.

12. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Colorado.

13. Consent to Jurisdiction and Service of Process. The Sub-Adviser
irrevocably submits to the jurisdiction of any Colorado State or United States
Federal court sitting in Colorado, over any suit, action or proceeding arising
out of or relating to this Agreement. The Sub-Adviser irrevocably waives, to the
fullest extent permitted by law, any objection which it may

B-3
<PAGE>

have to the laying of the venue of any such suit, action or proceeding brought
in such a court and any claim that any such suit, action or proceeding brought
in such a court has been brought in an inconvenient forum. The Sub-Adviser
agrees that final judgment in any such suit, action or proceeding brought in
such a court shall be conclusive and binding upon the Sub-Adviser, and may be
enforced to the extent permitted by applicable law in any court of the
jurisdiction of which the Sub-Adviser is subject by a suit upon such judgment,
provided that service of process is effected upon the Sub-Adviser in the manner
specified in the following paragraph or as otherwise permitted by law.

As long as this Agreement remains in effect, the Sub-Adviser will at all
times have an authorized agent in the State of Colorado upon whom process may be
served in any legal action or proceeding in a Colorado State or United States
Federal court sitting in the State of Colorado over any suit, action or
proceeding arising out of or relating to this Agreement. The Sub-Adviser hereby
appoints the Secretary of the Fund as its agent for such purpose, and covenants
and agrees that service of process in any such legal action or proceeding may be
made upon it at the office of such agent at 1680 38th Street, Suite 800, Boulder
Colorado 80301 (or at such other address in the State of Colorado, as said agent
may designate by written notice to the Fund and the Adviser). The Sub-Adviser
hereby consents to process being served in any suit, action or proceeding of the
nature referred to in preceding paragraph by service upon such agent together
with the mailing of a copy thereof by registered or certified mail, postage
prepaid, return receipt requested, to the office of the Sub-Adviser at Bellerive
House, Queen Street, St. Peter, Barbados or to any other address of which the
Sub-Adviser shall have given written notice to the Fund and the Adviser. The
Sub-Adviser irrevocably waives, to the fullest extent permitted by law, all
claim of error by reason of any such service (but does not waive any right to
assert lack of subject matter jurisdiction) and agrees that such service (i)
shall be deemed in every respect effective service of process upon the
Sub-Adviser in any suit, action or proceeding and (ii) shall, to the fullest
extent permitted by law, be taken and held to be valid personal service upon and
personal delivery to the Sub-Adviser.

Nothing in this Section shall affect the right of the Fund or the Adviser
to serve process in any manner permitted by law or limit the right of the Fund
or the Adviser to bring proceedings against the Sub-Adviser in the courts of any
jurisdiction or jurisdictions.

14. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original for all purposes, and together shall
constitute one and the same Agreement.

B-4
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.

THE ADVISER: THE SUB-ADVISER:

BOULDER INVESTMENT ADVISERS, L.L.C. STEWART INVESTMENT ADVISERS, LTD.
a Colorado limited liability company a Barbados international business
corporation

By: ________________________________ By: _______________________________
Carl D. Johns Glade Christensen
Its: Assistant Manager Its: President

THE FUND:

PREFERRED INCOME MANAGEMENT
FUND INCORPORATED
a Maryland corporation

By: ________________________________
Stephen C. Miller
Its: President

B-5
<PAGE>

Exhibit A

The Portfolio shall consist of common stock and cash and cash equivalents
held for investment in common stocks or for temporary defensive purposes.

<PAGE>

Exhibit B

Fee Schedule

Sub-Adviser shall be paid by Boulder Investment Advisers, L.L.C. ("BIA")
after the end of each calendar month, a fee for the previous month computed at
the annual rate of 80% of the fees retained by BIA from the payments received by
BIA pursuant to the Investment Advisory Agreement between the Fund and BIA after
BIA has made required payments to any other sub-adviser.

<PAGE>

Exhibit C

INVESTMENT SUB-ADVISORY AGREEMENT

THIS INVESTMENT SUB-ADVISORY AGREEMENT (this "Agreement") is made as of the
27th day of August, 1999, by and among BOULDER INVESTMENT ADVISERS, L.L.C., a
Colorado limited liability company (the "Adviser"); and SPECTRUM ASSET
MANAGEMENT, INC., a Connecticut corporation (the "Sub-Adviser"); and PREFERRED
INCOME MANAGEMENT FUND INCORPORATED, a Maryland corporation (the "Fund").

2. Services as Sub-Adviser. Subject to the supervision and direction of the
Adviser, the Sub-Adviser will (a) act in accordance with the Investment Company
Act of 1940 (the "1940 Act") and the Investment Advisers Act of 1940, as the
same may be from time to time amended, (b) manage the Portfolio on a
discretionary basis in accordance with the objectives set forth in "Exhibit A"
hereto and such instructions as provided to the Sub-Adviser by the Adviser from
time to time, (c) make investment decisions and exercise voting rights in
respect of securities in the Portfolio, (d) place purchase and sale orders on
behalf of the Portfolio and (e) employ, at its own expense, professional
portfolio managers and securities analysts to provide research services to the
Fund. In providing these services, the Sub-Adviser will provide investment
research and supervision of the Portfolio's evaluation and, if appropriate, sale
and reinvestment of the Portfolio's assets. In addition, the Sub-Adviser will
furnish the Adviser with whatever statistical information the Adviser may
reasonably request with respect to the securities that the Portfolio may hold or
contemplate purchasing.

4. Information Provided to the Adviser and the Fund. The Sub-Adviser will
use its best efforts to keep the Adviser and the Fund informed of developments
materially

C-1
<PAGE>

affecting the Portfolio, and will, on its own initiative, furnish the Adviser
from time to time with whatever information the Sub-Adviser believes is
appropriate for this purpose.

C-2
<PAGE>

and commissions and stock exchange fees; fees of Directors of the Fund who are
not also officers, directors or employees of Adviser; Securities and Exchange
Commission fees, state Blue Sky qualification fees, charges of any custodian,
any sub-custodians and transfer and dividend-paying agents, insurance premiums,
outside auditing and legal expenses, costs of maintenance of the Fund's
existence, membership fees in trade associations, stock exchange listing fees
and expenses, litigation and other extraordinary or non-recurring expenses.

9. Term of Agreement. This Agreement shall become effective as of the date
it is approved by a vote of a "majority" (as defined in the 1940 Act) of the
Fund's outstanding voting securities (the "Effective Date") and shall continue
for an initial two-year term and shall remain in effect from year to year so
long as such continuance is specifically approved by (a) a majority of the
Directors who are not "interested persons" of the Fund (as defined in the 1940
Act) and a majority of the full Board of Directors or (b) a majority of the
outstanding voting securities of the Fund (as defined in the 1940 Act). This
Agreement is terminable by either any party hereto on sixty (60) days' written
notice to the other party. Any termination shall be without penalty and any
notice of termination shall be deemed given when received by the addressee.

11. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto.

12. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Colorado.

13. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original for all purposes, and together shall
constitute one and the same Agreement.

C-3
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.

THE ADVISER: THE SUB-ADVISER:

BOULDER INVESTMENT ADVISERS, L.L.C. SPECTRUM ASSET MANAGEMENT, INC.
a Colorado limited liability company a Connecticut corporation

By: ________________________________ By: _______________________________
Carl D. Johns Name:
Its: Assistant Manager Its: President

THE FUND:

PREFERRED INCOME MANAGEMENT
FUND INCORPORATED
a Maryland corporation

By: ________________________________
Stephen C. Miller
Its: President

C-4
<PAGE>

Exhibit A

The Portfolio shall consist of (i) preferred stock (including so-called
"hybrid" or taxable preferreds, including those such as capital securities that
have certain characteristics of debt securities), (ii) interest rate futures
contracts or options thereon and (iii) cash and cash equivalents held for
investment in (i) and (ii) or for temporary defensive purposes.

<PAGE>

Exhibit B

Fee Schedule

Sub-Adviser shall be paid after the end of each calendar month, a fee for
the previous month computed at the annual rate of 0.45 of 1.00% of the value of
the Fund's average monthly net assets which comprise the Portfolio (as defined
below) up to $50 million and (b) 0.40 of 1.00% of the value of the average
monthly net assets of the Portfolio, in excess of $50 million. For the purpose
of this Agreement, the term Portfolio shall mean assets invested in preferred
stocks (including so-called "hybrid" or taxable preferreds, including those such
as capital securities that have certain characteristics of debt securities),
related hedging instruments and cash and cash equivalents held for investment in
preferreds or related hedging instruments. For the avoidance of doubt, it is
recognized that cash and cash equivalents held by the Sub-Adviser for investment
in preferreds or related hedging instruments will be deemed part of the
Portfolio, and that cash and cash equivalents that result from liquidation of
securities by the Sub-Adviser at the request of Adviser for investment by the
Adviser shall not be a part of the Portfolio. (For purposes of calculating
Sub-Adviser's fee, the Fund's average monthly net assets will be deemed to be
the average monthly value of the Fund's total assets minus the sum of the Fund's
liabilities (which liabilities exclude the aggregate liquidation preference of
the Fund's outstanding preferred stock and the amount of senior securities
representing any indebtedness) and dividends.)

<PAGE>

PROXY

PREFERRED INCOME MANAGEMENT FUND INCORPORATED

PROXY SOLICITED BY THE BOARD OF DIRECTORS

The undersigned holder of shares of Money Market Cumulative Preferred(TM) Stock
("MMP(R)") of Preferred Income Management Fund Incorporated, a Maryland
corporation (the "Fund"), hereby appoints Stephen C. Miller, Carl D. Johns,
Teresa M.R. Hamlin and Christine P. Ritch, attorneys and proxies for the
undersigned, each with full powers of substitution and revocation, to represent
the undersigned and to vote on behalf of the undersigned all shares of MMP(R),
which the undersigned is entitled to vote at the Special Meeting of Shareholders
of the Fund to be held at the Marriott Camelback Inn, 5402 East Lincoln Drive,
Scottsdale, Arizona 85253 at 9:00 a.m. M.S.T., on August 27, 1999, and any
adjournments thereof. The undersigned hereby acknowledges receipt of the Notice
of Special Meeting and Proxy Statement and hereby instructs said attorneys and
proxies to vote said shares as indicated hereon. In their discretion, the
proxies are authorized to vote upon such other business as may properly come
before the Meeting. A majority of the proxies present and acting at the Special
Meeting in person or by substitute (or, if only one shall be so present, then
that one) shall have and may exercise all of the power and authority of said
proxies hereunder. The undersigned hereby revokes any proxy previously given.

- ----------- -----------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
- ----------- -----------

<PAGE>

|X| Please mark votes as in this
example.

This proxy, if properly executed, will be voted in the manner directed by
the undersigned shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR ALL PROPOSALS.

Please refer to the Proxy Statement for a discussion of the Proposals.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSALS LISTED BELOW

FOR AGAINST ABSTAIN
1. To approve or disapprove a proposed investment |_| |_| |_|
advisory agreement between the Fund and Boulder
Investment Advisers, L.L.C. ("BIA").

FOR AGAINST ABSTAIN
2. To approve or disapprove a proposed sub-investment |_| |_| |_|
advisory agreement among BIA, the Fund and Stewart
Investment Advisers, Ltd. ("SIA").

FOR AGAINST ABSTAIN
3. To approve or disapprove a proposed sub-investment |_| |_| |_|
advisory agreement among BIA, the Fund and
Spectrum Asset Management, Inc. ("Spectrum").

FOR AGAINST ABSTAIN
4. To approve or disapprove a change of the Fund's |_| |_| |_|
investment objective to total return, including a
related amendment to the Articles of Incorporation
of the Fund to change its name to Boulder Total
Return Fund, Inc.

FOR AGAINST ABSTAIN
5. To approve or disapprove an amendment to the |_| |_| |_|
Fund's fundamental investment restriction
regarding borrowing.

FOR AGAINST ABSTAIN
6. To approve or disapprove an amendment to the |_| |_| |_|
Fund's fundamental investment restriction
regarding the issuance of senior securities.

FOR AGAINST ABSTAIN
7. To approve or disapprove an amendment to the |_| |_| |_|
Fund's fundamental investment restriction
regarding industry concentration.

FOR AGAINST ABSTAIN
8. To approve or disapprove the deletion of the |_| |_| |_|
Fund's fundamental investment restriction
prohibiting investing for the purpose of control
or management of any company.

MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT |_|

PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.

NOTE: Please sign exactly as your name appears on this Proxy. If joint owners,
EITHER may sign this Proxy. When signing as attorney, executor, administrator,
trustee, guardian or corporate officer, please give your full title.

Signature: _______________ Date: ______ Signature: _______________ Date: ______

<PAGE>

PROXY

PREFERRED INCOME MANAGEMENT FUND INCORPORATED

PROXY SOLICITED BY THE BOARD OF DIRECTORS

The undersigned holder of shares of Common Stock of Preferred Income Management
Fund Incorporated, a Maryland corporation (the "Fund"), hereby appoints Stephen
C. Miller, Carl D. Johns, Teresa M.R. Hamlin and Christine P. Ritch, attorneys
and proxies for the undersigned, each with full powers of substitution and
revocation, to represent the undersigned and to vote on behalf of the
undersigned all shares of Common Stock, which the undersigned is entitled to
vote at the Special Meeting of Shareholders of the Fund to be held at the
Marriott Camelback Inn, 5402 East Lincoln Drive, Scottsdale, Arizona 85253 at
9:00 a.m. M.S.T., on August 27, 1999, and any adjournments thereof. The
undersigned hereby acknowledges receipt of the Notice of Special Meeting and
Proxy Statement and hereby instructs said attorneys and proxies to vote said
shares as indicated hereon. In their discretion, the proxies are authorized to
vote upon such other business as may properly come before the Meeting. A
majority of the proxies present and acting at the Special Meeting in person or
by substitute (or, if only one shall be so present, then that one) shall have
and may exercise all of the power and authority of said proxies hereunder. The
undersigned hereby revokes any proxy previously given.