UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO.__ )
Filed by the Registrant [X]
Filed by Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary proxy statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2)
[X] Definitive proxy statement
[_] Definitive additional materials
[_] Soliciting materials pursuant to Rule 14a-11(c) or Rule 14a-12
EQUUS II INCORPORATED
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Dana Hiller, 2929 Allen Parkway, Suite 2500, Houston, TX 77019
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing fee for which the offsetting fee
was paid previously. Identify the previous filing by registration number,
or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule, or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
EQUUS II INCORPORATED
2929 ALLEN PARKWAY, SUITE 2500
HOUSTON, TEXAS 77019
713-529-0900
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TIME 9:00 a.m. Houston time on Tuesday, May 7, 2002
PLACE Meeting Room No. 1, Ground Level,
Wortham Tower
2727 Allen Parkway
Houston, Texas 77019
ITEMS OF BUSINESS (1) To elect eight members to the Board of Directors
for the ensuing year.
(2) To ratify the Board of Directors' appointment of
Arthur Andersen LLP as the Fund's independent auditors
for the fiscal year ending December 31, 2002.
(3) To transact such other business as may properly
come before the meeting.
RECORD DATE You are entitled to vote if you were a stockholder at
the close of business on March 22, 2002.
VOTING BY PROXY Please submit a proxy as soon as possible so that your
shares can be voted at the meeting in accordance with
your instructions. You may submit your proxy by mail.
For specific instructions, please refer to the
Questions and Answers, beginning on page 2 of this
proxy statement and the instructions on the proxy card.
By order of the Board of Directors,
TRACY H. COHEN
Secretary
This proxy statement and accompanying proxy card are being distributed
on or about April 8, 2002
EQUUS II INCORPORATED
2929 ALLEN PARKWAY, SUITE 2500
HOUSTON, TEXAS 77019
--------------------
PROXY STATEMENT
--------------------
This Proxy Statement is furnished to the stockholders of Equus II
Incorporated ("EQS" or the "Fund"), in connection with the solicitation by its
Board of Directors of proxies to be voted at the 2002 Annual Meeting of
Stockholders to be held on Tuesday, May 7, 2002, at 9:00 a.m., local time, at
Meeting Room No. 1, Ground Level, Wortham Tower, 2727 Allen Parkway, Houston,
Texas 77019, and at any adjournment thereof.
ABOUT THE MEETING
WHAT IS THE PURPOSE OF THE ANNUAL MEETING?
At the annual meeting, stockholders will act upon the matters outlined in
the accompanying notice of meeting, including the election of directors and
ratification of the Fund's independent auditors. In addition, the Fund's
management will report on the performance of the Fund during 2001 and respond to
questions from stockholders.
WHO IS ENTITLED TO VOTE?
Stockholders of record at the close of business on the record date,
March 22, 2002, are entitled to receive notice of the annual meeting and to vote
the shares of common stock that they held on that date at the meeting, or any
postponement or adjournment of the meeting. Each outstanding share entitles its
holder to cast one vote on each matter to be voted upon. A list of stockholders
on the record date will be available for inspection at the Fund's office at 2929
Allen Parkway, Suite 2500, Houston, Texas for 10 days before the meeting.
WHO CAN ATTEND THE MEETING?
All stockholders as of the record date, or their duly appointed proxies,
may attend the meeting. Each stockholder may be asked to present valid picture
identification, such as a driver's license or passport. Cameras, recording
devices, and other electronic devices will not be permitted at the meeting.
Please note that if you hold your shares in "street name" (that is, through
a broker, bank, or other nominee), you will need to bring a copy of a brokerage
statement reflecting your stock ownership as of the record date and check in at
the registration desk at the meeting.
Parking is available at local garages; the fee for parking is $0.75 per
hour.
WHAT CONSTITUTES A QUORUM?
The presence at the meeting, in person or by proxy, of the holders of a
majority of the shares of common stock outstanding on the record date will
constitute a quorum, permitting the meeting to conduct its business. As of the
record date, 6,233,021 shares of common stock of the Fund were outstanding.
Proxies received but marked as abstentions and broker non-votes that are voted
on any
1
matter will be included in the calculation of the number of shares considered to
be present at the meeting.
HOW DO I VOTE?
If you complete and properly sign the accompanying proxy card and return it
to the Fund, it will be voted as you direct. If you are a registered stockholder
and attend the meeting, you may deliver your completed proxy card in person.
"Street name" stockholders who wish to vote at the meeting will need to obtain a
proxy form from the institution that holds their shares.
CAN I VOTE BY TELEPHONE OR ELECTRONICALLY?
Because of cost increases, we are not offering registered stockholders
(that is, if you hold your stock in your own name) the ability to vote by
telephone or via the internet. If your shares are held in "street name," you
will need to contact your broker or other nominee to determine whether you will
be able to vote by telephone or electronically.
CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?
Yes. Even after you have submitted your proxy, you may change your vote at
any time before the proxy is exercised by filing with the Secretary of the Fund
either a notice of revocation or a duly executed proxy bearing a later date. The
powers of the proxy holders will be suspended if you attend the meeting in
person and so request, although attendance at the meeting will not by itself
revoke a previously granted proxy.
WHAT ARE THE BOARD'S RECOMMENDATIONS?
The Board's recommendation is set forth together with the description of
each item in this proxy statement. In summary, the Board recommends a vote:
. for election of the nominated slate of directors (see page 4) and
. for ratification of the appointment of Arthur Andersen LLP as the Fund's
independent auditors (see page 17).
With respect to any other matter that properly comes before the meeting,
the proxy holders will vote as recommended by the Board of Directors or, if no
recommendation is given, in their own discretion.
HOW ARE VOTES COUNTED?
In the election of directors, you may vote "FOR" all of the nominees or
your vote may be "WITHHELD" with respect to one or more of the nominees. For the
other proposals, you may vote "FOR," "AGAINST," or "ABSTAIN." If you sign your
proxy card or broker voting instruction card with no further instructions, your
shares will be voted in accordance with the recommendations of the Board.
WHAT VOTE IS REQUIRED TO APPROVE EACH ITEM?
Election of Directors. The affirmative vote of a plurality of the votes
cast at the meeting is required for the election of directors. A properly
executed proxy marked "WITHHELD" with respect
2
to the election of one or more directors will not be voted with respect to the
director or directors indicated, although it will be counted for purposes of
determining whether there is a quorum.
Other Items. For each other item, the affirmative vote of the holders of a
majority of the shares represented in person or by proxy and entitled to vote on
the item will be required for approval. A properly executed proxy marked
"ABSTAIN" with respect to any such matter will not be voted in favor of or
against such matter, although it will be counted as voted for purposes of
determining whether there is a quorum.
If you hold shares in "street name" through a broker, bank, or other
nominee, your broker, bank, or nominee may not be permitted to exercise voting
discretion with respect to some of the matters to be acted upon. Thus, if you do
not give your broker or nominee specific instructions, your shares may not be
voted on those matters and will not be counted in determining the number of
shares necessary for approval. Shares represented by such "broker non-votes"
will, however, be counted in determining whether there is a quorum.
WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY OR VOTING INSTRUCTION CARD?
It means your shares are registered differently or are in more than one
account. Please provide voting instructions for all proxy and voting instruction
cards you receive.
WHO WILL BEAR THE COST OF SOLICITING VOTES FOR THE MEETING?
The cost of soliciting proxies will be paid by the Fund. Copies of
solicitation material will be furnished to brokerage houses, fiduciaries and
custodians to forward to beneficial owners of stock held in the name of such
nominees. The solicitation of proxies will be by mail, telephone, or otherwise
through the officers and regular employees of the Fund or Equus Capital
Management Company, the Fund's investment advisor (the "Management Company")
without special compensation therefor.
3
ITEM 1 -- ELECTION OF DIRECTORS
Article III, Section 3.2 of the By-laws of the Fund provides for a minimum
of three and a maximum of fifteen directors (a majority of whom must be
independent directors). There are currently eight directors, including six
independent directors (i.e. directors who are not "interested persons" as
defined in the Investment Company Act). The nominees receiving an affirmative
vote of a plurality of the shares entitled to vote and present, either in person
or by proxy, at the Annual Meeting, will be elected as members of the Board. All
of the elected directors will serve until their respective successors have been
duly elected and qualified or until they resign, die or are removed from office.
The persons named as proxies in the enclosed form of proxy were selected by
the Board, and have advised the Board that, unless authority is withheld, they
intend to vote the shares represented by them at the Annual Meeting for the
election of Sam P. Douglass, Gregory J. Flanagan, Robert L. Knauss, Nolan
Lehmann, Gary R. Petersen, John W. Storms, Dr. Francis D. Tuggle, and Dr. Edward
E. Williams. All of the nominees are current members of the Board, six of whom
are independent directors (Messrs. Flanagan, Knauss, Petersen, Storms, and Drs.
Tuggle and Williams). All of the nominees have consented to their nomination and
will serve if elected to the Board.
The Board knows of no reason why any nominee for director would be unable
to serve as a director. If at the time of the Annual Meeting any of the named
nominees are unable or unwilling to serve as directors of the Fund, the persons
named as proxies intend to vote for such substitutes as may be nominated by the
Board.
THE BOARD UNANIMOUSLY RECOMMENDS THAT EACH STOCKHOLDER VOTE "FOR" THE
ELECTION OF THE BOARD'S NOMINEES FOR DIRECTOR.
WHAT ARE THE DUTIES OF THE BOARD OF DIRECTORS?
The Board provides overall guidance and supervision with respect to the
operations of the Fund and performs the various duties imposed on the directors
of business development companies by the Investment Company Act. Among other
things, the Board supervises the management arrangements of the Fund, the
custodial arrangements with respect to portfolio securities, the selection of
accountants, fidelity bonding and transactions with affiliates. All actions
taken by the Board are taken by majority vote unless a higher percentage is
required by law or unless the Investment Company Act, the Fund's Restated
Certificate of Incorporation or By-laws require that the actions be approved by
a majority of the independent directors. The Investment Company Act requires
that a majority of the directors be individuals who are not "interested persons"
(as defined under the Investment Company Act) of the Fund.
4
NOMINEES FOR DIRECTOR
Number of
Portfolios in
Fund Complex Other
Overseen by Directorships
Name, Position(s) Term of Office Director or Held by Director
Address, Held with and Length of Principal Occupation(s) Nominee for or Nominee for
and Age Fund Time Served During Past 5 Years Director Director
- -------------------- ----------- -------------- ------------------------ ------------- ----------------
Gregory J. Flanagan; Director One year; Area President of Arthur J. One
Age 56 director Gallagher & Co. and Managing
since 1992 Director of Healthcare
First, a division of Arthur J.
Gallagher & Co. since December
15, 2000. From January 1997 to
December 15, 2000, he was a
Vice President of Arthur J.
Gallagher & Co
Robert L. Knauss; Director One year; director Chairman and Chief Executive One The Mexico Fund, Inc.
Age 71 since 1991 Officer of Baltic International and Philip Services
USA, Inc. since January 1994; Corp.
director of Philip Services
Corp where he has served as
Chairman of the Board since
May 1998.
Gary R. Petersen; Director One year; director Managing Director of EnCap One Harken Energy
Age 55 since 1994 Investments, L.L.C. since 1989 Corporation, Nuevo
Energy Company, and
Energy Capital
Investment Company
John W. Storms; Director One year; director Managing General Partner of Two
Age 57 since 1991 Storms & Critz, Certified
Public Accountants since
May of 1988
Dr. Francis D. Tuggle; Director One year; director Professor at the Kogod One
Age 59 since 1991 College of Business
Administration at American
University since July 1990
where he was Dean from
July 1990 to June 1996
Dr. Edward E. Williams; Director One year; director Henry Gardiner Symonds Professor One Service Corporation
Age 56 since 1992 and the Director of the International
Entrepreneurship Program
of the Jesse H. Jones Graduate
School of Management at Rice
University since 1982
The following directors, who are officers of the Fund, are "interested persons" as defined in the Investment Company Act.
Sam P. Douglass; Chairman of One year; Chairman Chairman of the Board and One Advanced Technical
Age 69 the Board and CEO since 1991 Chief Executive Officer of Products, Inc.
and Chief the Management Company since
Executive 1983. Since December 1978,
Officer he has served as Chairman
and Chief Executive Officer
of Equus Corporation
International ("ECI"), a
privately owned corporation
engaged in a variety of
investment activities
Nolan Lehmann; President One year; President and a director One Allied Waste
Age 57 and a President of the Management Company Industries, Inc.
director and a since 1983
director
since 1991
5
WHAT COMMITTEES HAS THE BOARD ESTABLISHED?
The Board has five committees: an Audit Committee, a Committee of the
Independent Directors, a Compensation Committee, a Nominating Committee, and a
Committee to Study Methods for the Enhancement of Shareholder Value. The Board
has no other standing committees.
AUDIT COMMITTEE
The functions of the Audit Committee are to:
. make recommendations to the full Board regarding the engagement or
discharge of independent accountants;
. direct and supervise investigations of matters within the scope of the
independent accountant's duties;
. review with the independent accountants the audit plan and results of the
audit; approve each professional service provided by the independent
accountants prior to the performance of such service;
. consider the range of audit and nonaudit fees; and
. review the adequacy of the Fund's system of internal accounting controls.
The members of the Audit Committee are independent (as defined in Section
303.01(B)(2) and (3) of the New York Stock Exchange listing standards).
COMMITTEE OF THE INDEPENDENT DIRECTORS
The functions of the Committee of the Independent Directors are to:
. recommend to the full Board approval of any management, advisory, or
administration agreements;
. recommend to the full Board any underwriting or distribution agreements;
review the fidelity bond and premium allocation;
. review any joint insurance policies and premium allocation;
. review and monitor the Fund's compliance with procedures adopted pursuant
to certain rules promulgated under the Investment Company Act; and
. carry out such other duties as the independent directors shall, from time
to time, conclude are necessary in the performance of their duties under
the Investment Company Act.
COMPENSATION COMMITTEE
The function of the Compensation Committee is to determine and issue stock
options for officers of the Fund under the Equus II Incorporated 1997 Stock
Incentive Plan (the "Plan"), which is the only form of compensation paid by the
Fund to its officers for serving as such.
NOMINATING COMMITTEE
The function of the Nominating Committee is to select individuals for
nomination to the Board of Directors of the Fund. The Nominating Committee will
consider nominees recommended by stockholders. The procedures to be followed by
stockholders in submitting such recommendations are set forth under "Stockholder
Proposals for 2003 Annual Meeting."
6
COMMITTEE TO STUDY METHODS FOR THE ENHANCEMENT OF SHAREHOLDER VALUE
The function of the Committee to Study Methods for the Enhancement of
Shareholder Value is to recommend to the Board plans and actions which might
increase the value at which the EQS Common Stock trades on the New York Stock
Exchange.
HOW OFTEN DID THE BOARD AND ITS COMMITTEES MEET DURING 2001?
During 2001, the Board met in person four times, the Audit Committee held
five meetings, the Compensation Committee and the Nominating Committee each held
one meeting. The Committee of Independent Directors and the Committee to Study
Methods for Enhancement of Shareholder Value met as needed at regularly
scheduled Board Meetings. All directors attended more than 75% of the meetings
held by the Board or the committees of the Board on which they served.
BOARD COMMITTEE MEMBERSHIP
COMMITTEE TO STUDY
COMMITTEE OF METHODS FOR
COMPENSATION AUDIT INDEPENDENT ENHANCEMENT OF NOMINATING
NAME COMMITTEE COMMITTEE DIRECTORS SHAREHOLDER VALUE COMMITTEE
- -------------------------------------------------------------------------------------------------------------------
Gregory J. Flanagan X X X*
- -------------------------------------------------------------------------------------------------------------------
Robert L. Knauss X* X X
- -------------------------------------------------------------------------------------------------------------------
Gary R. Petersen X* X X
- -------------------------------------------------------------------------------------------------------------------
John W. Storms X X X*
- -------------------------------------------------------------------------------------------------------------------
Dr. Francis D. Tuggle X X X
- -------------------------------------------------------------------------------------------------------------------
Dr. Edward E. Williams X X X
- -------------------------------------------------------------------------------------------------------------------
X = Member
* = Chairman
The Restated Certificate of Incorporation and By-laws of the Fund provide
for the indemnification of the Fund's directors in connection with their
activities as directors.
7
DOLLAR RANGE OF EQUITY SECURITIES BENEFICIALLY OWNED BY DIRECTORS
Aggregate Dollar Range of Equity
Securities in All Funds Overseen
or to be Overseen by Director
Name of Director Dollar Range of Equity or Nominee in Family of
or Nominee Securities in the Fund(1) Investment Companies
- ------------------------- ------------------------------ -------------------------------
Sam P. Douglass Over $100,000 Over $100,000(2)
Gregory J. Flanagan $50,001-$100,000(3) $50,001-$100,000(2)(3)
Robert L. Knauss $1-$10,000(3) $1-$10,000(2)(3)
Nolan Lehmann Over $100,000 Over $100,000(2)
Gary R. Petersen $ 10,001-$50,000(3) $10,001-$50,000(2)(3)
John W. Storms $50,001-$100,000(3) $50,001-$100,000(2)(3)
Dr. Francis D. Tuggle $ 10,001-$50,000(3) $10,001-$100,000(2)(3)
Dr. Edward E. Williams Over $100,000 Over $100,000(2)
(1) Based on closing price of EQS common stock on March 29, 2002.
(2) Includes only shares of the Fund. No director or nominee for director of the
Fund is a director of another fund in the Equus family of investment
companies except John W. Storms who is an independent general partner of
Equus Capital Partners, L.P., a Delaware limited partnership managed by the
Management Company.
(3) Excludes options exercisable within 60 days that are not in-the-money.
Other Indirect Interests
Dr. Williams holds a promissory note issued by Equus Capital Corporation, a
wholly owned subsidiary of the Management Company ("ECC"), in connection with
ECC's redemption of its Series C preferred stock. The note is payable out of a
pool of assets comprised of certain investments in marketable securities and
partnerships owned by ECC. At December 31, 2001, the aggregate value of the net
asset pool was $4,380,821, of which Dr. Williams had a 5.3% interest with a
value of $232,184.
8
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board reviews the financial reporting process,
the system of internal controls, the audit process, and the process of
monitoring compliance with laws and regulations. Each of the Audit Committee
members satisfies the definition of independent director as established in the
New York Stock Exchange Listing Requirements. The Board adopted an initial
written charter for the Audit Committee on October 26, 1999. A revised charter
was adopted on February 6, 2001. A copy of the charter was included as Appendix
A to the Fund's proxy statement dated April 3, 2001. The Fund operates on a
January 1 to December 31 fiscal and tax year. However, the Fund uses a
November 1 to October 31 tax year for determining its capital gains for excise
tax purposes. The Audit Committee met five times during 2001.
The Audit Committee has reviewed the Fund's audited financial statements
for the year ended December 31, 2001, and discussed such statements with
management. The Audit Committee has discussed with Arthur Andersen LLP, the
Fund's independent accountants during 2001, the matters required to be discussed
by Statement of Auditing Standards No. 61 (Communication with Audit and Finance
Committees, as amended).
The Audit Committee received from Arthur Andersen LLP the written
disclosure required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committee, as amended), and discussed with them their
independence.
Based on the review and discussions noted above, the Audit Committee
recommended to the Board that the Fund's audited financial statements for the
year ended December 31, 2001, be included in the Fund's Annual Report on Form
10-K for the year ended December 31, 2001, and be filed with the Securities and
Exchange Commission.
This report of the Audit Committee shall not be deemed incorporated by
reference by any general statement incorporating by reference this proxy
statement into any filing under the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, or the Investment Company Act of
1940, as amended, except to the extent that the Fund specifically incorporates
this information by reference, and shall not otherwise be deemed filed under
such Acts.
Submitted by:
Audit Committee
Robert L. Knauss, Chairman
John W. Storms
Dr. Francis D. Tuggle
9
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS OF THE FUND
Each director who is not an officer of the Fund receives an annual fee of
$25,000, $3,000 for each meeting of the directors attended, $1,500 for
participation in each meeting conducted by telephonic conference, and $1,500 for
each committee meeting attended ($500 for each committee meeting - if attended
on the same day as a Board meeting), and reimbursement for all out-of-pocket
expenses relating to attendance at such meetings. The independent directors do
not receive any additional compensation from the Fund or portfolio companies for
any additional services rendered. Officers and directors of the Fund who are
affiliated with management may serve as directors of portfolio companies and in
such capacities may receive and retain directors' fees and other compensation
directly from the portfolio companies. Officers of the Fund do not receive cash
compensation directly from the Fund, but are employed by and receive a salary
from the Management Company. The Fund established a stock incentive plan in 1997
to provide incentive compensation to its directors, officers, and employees.
The directors who were not officers of the Fund were paid an aggregate of
$246,000 and $233,000 as compensation for the years ended December 31, 2001 and
2000, respectively.
Under the 1997 Stock Incentive Plan (the "Plan") each non-officer director
was granted an option to purchase 5,500 shares of EQS common stock on
November 4, 1997. In addition, each individual elected as a non-officer director
is, on the first business day following the annual stockholders meeting, granted
a stock option to purchase 2,200 shares of EQS common stock at the closing sales
price for shares of EQS common stock on that date. The Fund currently has no
bonus, profit-sharing, pension or retirement plan. Any new director will
automatically be granted an option to purchase 5,500 shares of EQS common stock
on the first business day following such director's first board meeting.
Under the Plan the Fund may grant stock options to eligible directors and
officers for up to the number of shares of EQS common stock equal to 20% of the
outstanding shares. At December 31, 2001, the Fund had outstanding stock options
covering an aggregate of 1,073,600 shares. The Compensation Committee is
responsible for granting awards of stock options under the Plan.
COMPENSATION
The following table sets forth all compensation paid to the directors, and
for each of the three highest paid officers who have aggregate compensation from
the Fund in 2001 in excess of $60,000:
LONG-TERM
PENSION COMPENSATION AWARDS
AGGREGATE OR RETIREMENT -------------------
COMPENSATION BENEFITS ACCRUED AS NUMBER OF SECURITIES
NAME OF DIRECTOR FROM THE FUND PART OF FUND EXPENSES UNDERLYING OPTIONS
---------------- ------------------ --------------------- -------------------
Sam P. Douglass*........ $ 0(1) $ 0 237,600
Gregory J. Flanagan..... 41,250 0 2,200
Robert L. Knauss........ 42,500 0 2,200
Nolan Lehmann*.......... 0(1) 0 227,700
Gary R. Petersen........ 39,750 0 2,200
John W. Storms.......... 42,500 0 2,200
Francis D. Tuggle....... 41,750 0 2,200
Edward E. Williams...... 39,000 0 2,200
- ----------------
* Designates an "interested person."
(1) Mr. Douglass and Mr. Lehmann do not receive a salary from the Fund.
10
OPTIONS GRANTED DURING 2001
The following table contains information concerning the grant of stock
options under the Fund's incentive stock plan to directors and executive
officers during 2001.
% OF TOTAL
OPTIONS
NUMBER OF GRANTED TO POTENTIAL REALIZABLE VALUE AT ASSUMED
SECURITIES DIRECTORS AND ANNUAL RATES OF STOCK PRICE
UNDERLYING OFFICERS IN EXERCISE APPRECIATION FOR OPTION TERM(1)
OPTIONS FISCAL YEAR PRICE EXPIRATION ---------------------------------------
NAME GRANTED (#) 2001 ($/SH) DATE 5%($) 10%($)
---- ----------- -------------- --------- ---------- ------------- -----------
Sam P. Douglass......... 237,600 23.7% $7.69 11/14/11 $2,976,225 $4,739,141
Gregory J. Flanagan..... 2,200 0.2% 8.45 05/04/11 30,281 48,218
Robert L. Knauss........ 2,200 0.2% 8.45 05/04/11 30,281 48,218
Nolan Lehmann........... 227,700 22.7% 7.69 11/14/11 2,852,216 4,541,677
Gary R. Petersen........ 2,200 0.2% 8.45 05/04/11 30,281 48,218
John W. Storms.......... 2,200 0.2% 8.45 05/04/11 30,281 48,218
Francis D. Tuggle....... 2,200 0.2% 8.45 05/04/11 30,281 48,218
Edward E. Williams...... 2,200 0.2% 8.45 05/04/11 30,281 48,218
___________
(1) The amounts shown under these columns are the result of calculations at the
5% and 10% rates required by the rules adopted by the Securities and
Exchange Commission and are not intended to forecast future appreciation of
the Fund's stock price. The potential realizable values are based on an
assumption that the stock price of the shares of EQS Common Stock
appreciates at the annual rate shown (compounded annually) from the date of
grant until the end of the option term. The values do not take into account
amounts required to be paid as income taxes or option provisions providing
for termination of an option following termination of employment,
nontransferability, or vesting over periods of up to four years.
STOCK OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth certain information concerning the value of
unexercised options held by the Fund's Chief Executive Officer and the Fund's
four most highly compensated executive officers other than the CEO at
December 31, 2001.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 2001 DECEMBER 31, 2001(1)
ACQUIRED ON VALUE ------------------------------ ----------------------------
EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------------- ------------- ----------- ------------- ----------- -------------
Sam P. Douglass... 0(2) $0(2) 0 237,600 $0 $23,760
Nolan Lehmann..... 0(3) 0(3) 0 227,700 0 22,770
Gary L. Forbes.... 0(4) 0(4) 0 198,000 0 19,800
Randall B. Hale... 0(5) 0(5) 0 198,000 0 19,800
Tracy H. Cohen.... 0(6) 0(6) 0 99,000 0 9,900
- ------------
(1) The value is based on a closing sale price of $7.79 per share on
December 31, 2001.
(2) On September 30, 1999, Mr. Douglass exercised options to purchase 193,753
shares of common stock at $17.00 per share. The exercise price of
$3,293,801, was paid in the form of a promissory note from Mr. Douglass to
the Fund. At June 30, 2001, the note was secured by 206,959 shares of the
Fund's common stock. In September 2001, Mr. Douglass surrendered 204,378
shares of common stock securing the note to the Fund in satisfaction of
11
the note and accrued interest aggregating $2,932,089. The Fund released
2,581 shares to Mr. Douglass.
(3) On September 30, 1999, Mr. Lehmann exercised options to purchase 173,000
shares of common stock at $17.00 per share. The exercise price of
$2,941,000, was paid in the form of a promissory note from Mr. Lehmann to
the Fund. At June 30, 2001, the note was secured by 258,226 shares of the
Fund's common stock. In September 2001, Mr. Lehmann surrendered 226,510
shares of common stock securing the note to the Fund in satisfaction of the
note and accrued interest aggregating $3,256,510. The Fund released 31,716
shares to Mr. Lehmann.
(4) On September 30, 1999, Mr. Forbes exercised options to purchase 119,387
shares of common stock at $17.00 per share. The exercise price of
$2,029,579, was paid in the form of a promissory note from Mr. Forbes to the
Fund. At June 30, 2001, the note was secured by 119,387 shares of the Fund's
common stock. In September 2001, Mr. Forbes surrendered all 119,387 shares
of common stock securing the note to the Fund in satisfaction of the note
and accrued interest aggregating $1,737,194.
(5) On September 30, 1999, Mr. Hale exercised options to purchase 119,387 shares
of common stock at $17.00 per share. The exercise price of $2,029,579, was
paid in the form of a promissory note from Mr. Hale to the Fund. At June 30,
2001, the note was secured by 178,200 shares of the Fund's common stock. In
September 2001, Mr. Hale surrendered 156,314 shares of common stock securing
the note to the Fund in satisfaction of the note and accrued interest
aggregating $2,247,421. The Fund released 21,886 shares to Mr. Hale.
(6) On September 30, 1999, Ms. Cohen exercised options to purchase 17,646 shares
of common stock at $17.00 per share. The exercise price of $299,982, was
paid in the form of a promissory note from Ms. Cohen the Fund. At June 30,
2001, the note was secured by 26,339 shares of the Fund's common stock. In
September 2001, Ms. Cohen surrendered 23,104 shares of common stock securing
the note to the Fund in satisfaction of the note and accrued interest
aggregating $332,180. The Fund released 3,235 shares to Ms. Cohen.
EXECUTIVE OFFICERS OF THE FUND
The executive officers of the Fund are:
Sam P. Douglass Chairman of the Board and Chief Executive Officer
Nolan Lehmann President
Tracy H. Cohen Vice President and Secretary
Gary L. Forbes Vice President
Randall B. Hale Vice President
Dana K. Hiller Vice President
Executive officers receive no cash compensation from the Fund, but participate
in the 1997 Stock Incentive Plan. See "Investment Management Agreement" and
"Management Company" below. For a description of the business background of each
of Messrs. Douglass and Lehmann see "Nominees for Director" above.
Tracy H. Cohen Ms. Cohen has been Secretary of the Fund since March 1996 and
Age 35 a Vice President of the Fund since May 1995. She has been
Secretary of the Management Company since April 1999. She has
also been Investor Relations Manager of the Management Company
since April 1995. Ms. Cohen is a director of Equicom, Inc.,
which is a privately-owned company in which the Fund has an
investment. Ms. Cohen is a certified public accountant.
Gary L. Forbes Mr. Forbes has been a Vice President of the Fund since
Age 58 December 1991 and a Vice President of the Management Company
since November 1991. He is a director of Advanced Technical
Products, Inc. and has served as Chairman of the Board since
July, 2000. He is also a director of Consolidated Graphics,
Inc. and NCI Building Systems, Inc. He is also a director of
eight of the privately-owned companies in which the Fund has
an investment. Mr. Forbes is a certified public accountant.
12
Randall B. Hale Mr. Hale has been a Vice President of the Fund and the
Age 39 Management Company since November 1992. He has been a director
of the Management Company since February 1996. Mr. Hale is a
director of Industrial Data Systems Corporation and six of the
privately-owned companies in which the Fund has an investment.
Mr. Hale is a certified public accountant.
Dana K. Hiller Ms. Hiller has been a Vice President of the Fund since
Age 34 May 2001. She joined the Management Company as Controller in
September 1999. She was elected Vice President in May 2001.
From May 1997 to September 1999 she was practice controller of
Integrated Orthopedics, Inc. From August 1994 to May 1997 she
was a financial analyst with American General Land
Development. She is a certified public accountant.
FILING OF REPORTS OF STOCK OWNERSHIP
Under the federal securities laws, the Fund's directors, executive (and
certain other) officers, and any persons holding more than ten percent of EQS
Common Stock are required to report their ownership of EQS Common Stock and any
changes in that ownership to the Fund and the Securities and Exchange Commission
(the "SEC") . Specific due dates for these reports have been established by
regulation and the Fund is required to report in this proxy statement any
failure to file by these dates in 2001. All of these filings were satisfied by
the Fund's directors, officers, and ten percent holders.
As of April 1, 2002, the Fund believes that all directors, officers and ten
percent holders are current in their filings. In making these statements, the
Fund has relied on the written representations of its directors, officers and
ten percent holders and copies of reports that they have filed with the SEC.
13
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth at March 31, 2002, the number and percentage
of outstanding shares of EQS Common Stock beneficially held by (1) any person
known to the Fund to be the beneficial owner of more than five percent of the
EQS common stock, (2) each director and nominee for director of the Fund, and
(3) all officers and directors as a group. Under the rules of the SEC, a person
is deemed to own beneficially all securities as to which that person owns or
shares voting or investment power, as well as all securities which such person
may acquire within 60 days through the exercise of currently available
conversion rights, warrants or options. Except as otherwise indicated, the
stockholders listed in the table below have sole voting and investment power
with respect to the shares indicated.
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
---------------------------
SOLE VOTING OPTIONS
AND EXERCISABLE OTHER
NAME OF INVESTMENT WITHIN BENEFICIAL PERCENT
TITLE OF CLASS BENEFICIAL OWNER POWER 60 DAYS OWNERSHIP TOTAL OF CLASS
- -------------- ---------------- ----------- ----------- ---------- -------- --------
Common Stock Sam P. Douglass(1) 16,658 118,800 386,724(2) 522,182 8.4%
Karpus Management, Inc.(3) 455,776 - - 455,776 7.3
Nolan Lehmann(4) 138,781 113,850 41,375(5) 294,006 4.7
Gregory J. Flanagan 7,590 13,198 880(6) 21,668 *
John W. Storms 7,876 12,098 0 19,974 *
Edward E. Williams 41,418 13,198 0 54,616 *
Gary R. Petersen 4,790 13,198 0 17,988 *
Francis D. Tuggle 3,300 12,098 0 15,398 *
Robert L. Knauss 675 13,198 438(7) 14,311 *
All directors and 676,864 309,638 429,417 1,415,919 22.7%
officers as a group
(twelve persons)
* Indicates less than one percent.
(1) Mr. Douglass' address is 2929 Allen Parkway, Suite 2500, Houston, Texas
77019.
(2) Includes (a) 26,512 shares held directly and in retirement accounts by
Paula T. Douglass, Mr. Douglass' wife, (b) 154,918 shares held by trusts
for the benefit of members of Mr. Douglass' family of which Mr. Douglass is
the trustee and a lifetime beneficiary, a trust of which Mr. Douglass is
the beneficiary, and a trust of which Mrs. Douglass is the beneficiary, and
(c) 205,296 shares held by Equus Corporation International, a Delaware
corporation of which Mr. Douglass is the Chairman of the Board and Chief
Executive Officer. Mr. Douglass disclaims beneficial ownership of all
shares not directly owned by him.
(3) Karpus Management, Inc's. address is 14 Tobey Village Office Park,
Pittsford, New York 14534. The address of and number of shares beneficially
owned by Karpus Management, Inc. is based on the Schedule 13G filed by
Karpus Management, Inc. with the SEC on February 14, 2002.
(4) Mr. Lehmann's address is 2929 Allen Parkway, Suite 2500, Houston, Texas
77019.
(5) Includes (a) 5,778 shares held by Jeanne Lehmann, Mr. Lehmann's spouse and
(b) 35,597 shares held by Lehmann Investments, L.P., of which Mr. Lehmann
is the general partner. Mr. Lehmann disclaims beneficial ownership of all
shares not owned directly by him.
(6) Includes 880 shares held by his spouse.
(7) Includes 438 shares held by the Robert L. Knauss Defined Plan (the "Knauss
Plan") of which Mr. Knauss is a control person. Mr. Knauss disclaims
beneficial ownership of the shares held by the Knauss Plan.
14
INVESTMENT MANAGEMENT AGREEMENT
The investments and business of the Fund are managed by the Management
Company, pursuant to a Management Agreement (the "Management Agreement") dated
May 9, 1997. The date that the Management Agreement was last submitted to a
vote of the stockholders of the Fund was May 9, 1997, when it was initially
approved. On May 3, 2001, the Board of Directors of the Fund approved the
continuation of the Management Agreement until June 30, 2002.
Under the Management Agreement the Management Company provides, or arranges
for suitable third parties to provide, any and all management and administrative
services reasonably necessary for the operation of the Fund and the conduct of
its business. Such management and administrative services include providing the
Fund with office space, equipment, facilities and supplies, and clerical
services; keeping and maintaining the books and records of the Fund, and
handling communications and correspondence with stockholders; preparing
accounting, management and other reports; and providing such other managerial
and administrative services as may be reasonably requested by the Fund to
identify, evaluate, structure, monitor and dispose of the Fund's investments. In
return for its services and the expenses which the Management Company assumes
under the Management Agreement, the Fund pays the Management Company, on a
quarterly basis, a management fee equal to 0.5% of the net assets of the Fund on
the last day of each calendar quarter (2% per annum). The management fee is
payable quarterly in arrears. The Management Company's management fee from the
Fund was $1,618,784 for the year ended December 31, 2001. The total net assets
of the Fund as of December 31, 2001, were approximately $77 million.
Under the Management Agreement, the Fund bears all costs and expenses
directly allocable and identifiable to the Fund or its business or investments,
including all expenses with respect to investments or the acquisition or
disposition thereof, expenses of registering the shares under federal and state
securities laws, costs of printing proxies and other expenses related to
meetings of stockholders, litigation expenses, costs of third party evaluations
or appraisals of the Fund (or its assets) or its actual investments, fees of
transfer agents and custodians, legal fees, fees of independent public
accountants, expenses of printing and distributing reports to stockholders,
securities holders and regulatory bodies, federal, state and local taxes, and
other costs and expenses directly allocable and identifiable to the Fund or its
business or investments.
The Management Company also receives compensation for providing certain
investor communication services of which $50,000 is included in the Statements
of Operations for the year ended December 31, 2001.
Certain officers and directors of the Fund serve as directors of Portfolio
Companies. In consideration for such service, such officers or directors may
receive and retain fees and non-employee director stock options from such
Portfolio Companies. During 2001 the officers and directors of the Fund received
$283,502 of director fees from Portfolio Companies.
The Management Agreement will continue in effect until June 30, 2002, and
from year-to-year thereafter provided such continuance is approved at least
annually by (i) a vote of a majority of the outstanding shares of the Fund or
(ii) a majority of the directors who are not "interested persons" of the Fund,
at a meeting called for the purpose of voting on such approval. The Management
Agreement may be terminated at any time, without the payment of any penalty, by
a vote of the Board of Directors of the Fund or the holders of a majority of the
Fund's shares on 60 days' written notice to the Management Company, and would
automatically terminate in the event of its "assignment" (as defined in the
Investment Company Act).
15
MANAGEMENT COMPANY
The Management Company was formed in 1983 and maintains its offices at 2929
Allen Parkway, Suite 2500, Houston, Texas 77019. The Management Company's sole
activity is to perform management, administrative and investment advisory
services for the Fund, Equus Capital Partners, L.P. and Equus Equity
Appreciation Fund, L.P. The Management Company is a registered investment
adviser under the Investment Advisers Act of 1940.
The officers and directors of the Management Company are:
Sam P. Douglass Chairman of the Board and Chief Executive Officer
Nolan Lehmann President and a director
Randall B. Hale Vice President and a director
Paula T. Douglass Director
S. Preston Douglass, Jr. Director
Gary L. Forbes Vice President
Tracy H. Cohen Secretary
For a description of the business background of each of Messrs. Sam P. Douglass,
Lehmann, Hale, and Forbes and Ms. Cohen see "Nominees for Director" and
"Executive Officers of the Fund" above. A description of the business background
of Paula T. Douglass and S. Preston Douglass, Jr., is set forth below. The
business address of the Management Company's officers and directors is 2929
Allen Parkway, Suite 2500, Houston, Texas 77019, except for S. Preston Douglass,
Jr. whose address is 2626 South Padre Island Drive, Corpus Christ, Texas 78413.
Paula T. Douglass, age 50, has been a director of ECI since December 1978
and the Management Company since July 1993. From February 1998 through November
2000, Ms. Douglass was Chairman and Chief Executive Officer of Cinema Film
Systems, Inc.
S. Preston Douglass, Jr. age 40, has been a director of the Management
Company since July, 1993. He is Chairman, Chief Executive Officer and President
of Corpus Christi Harley Davidson.
There is no family relationship between any independent director of the
Fund and any director or officer of the Management Company. Paula T. Douglass is
the wife of Sam P. Douglass and S. Preston Douglass, Jr. is the son of Sam P.
Douglass.
As a result of its stock ownership in the Management Company, ECI has 80%
voting control of the Management Company.
16
ITEM 2 -- RATIFICATION OF THE SELECTION OF INDEPENDENT
AUDITORS FOR THE FUND
Pursuant to Section 32(a) of the Investment Company Act, the Board is
required to select an independent public accountant to certify the Fund's
financial statements prior to the annual meeting and to submit such selection
for ratification at the next annual meeting. The Board, including a majority of
the Fund's disinterested directors, has selected the accounting firm of Arthur
Andersen LLP ("Andersen") to audit the Fund's financial statements for, and
otherwise act as the Fund's independent accountants with respect to the fiscal
year ending December 31, 2002. The Fund's employment of Andersen is conditioned
on the Fund's right to terminate such employment at any time without any
penalty. In accordance with the Board's resolution, the selection of Andersen
for the current fiscal year is submitted to stockholders for ratification. The
Fund knows of no direct or indirect financial interest of Andersen in the Fund.
Andersen has served as the independent accountants for the Fund since its
organization in 1991. A representative of Andersen is expected to be present at
the Annual Meeting and will be available to make a statement, if he or she so
desires, and to respond to appropriate questions of the stockholders.
Our Audit Committee and the Board continue to monitor developments
regarding Andersen. On March 14, 2002, the SEC announced that so long as
Andersen can continue to provide the SEC and the Fund with assurances that it
will continue to audit financial statements in accordance with generally
accepted auditing standards and applicable professional and firm auditing
standards, including quality control standards, and with respect to the
continuity of personnel working on the audit and the availability of national
office consultation, the SEC will continue to accept financial statements
audited by Andersen in filings. As stated above, the Fund has the right to
terminate the Fund's engagement of Andersen at any time, without cause or
penalty. Even if the appointment is ratified, our Audit Committee and the Board,
in their discretion, may direct the appointment of a different independent
accounting firm at any time during the year if the Board determines that such a
change would be in the Fund's and its stockholders' best interests. If the Audit
Committee and the Board decide to engage another independent auditor for 2002,
we anticipate that the new firm would be selected through a proposal process.
During 2001, the Fund retained its principal auditor, Andersen, to provide
services in the following categories and amounts:
Audit Fees $78,750
All Other Fees $46,850
During 2001, Arthur Andersen LLP provided audit and tax services to the
Management Company and Equus Capital Corporation, a subsidiary of the Management
Company, and was paid an aggregate amount of $33,500 for such services.
The Audit Committee has considered whether the provisions of nonaudit
services by the Fund's principal auditor is compatible with maintaining auditor
independence.
The proposal to ratify the appointment of Arthur Andersen LLP as the Fund's
independent auditors requires the affirmative vote of a majority of the
outstanding shares of EQS Common Stock represented and entitled to vote at the
Annual Meeting.
THE BOARD UNANIMOUSLY RECOMMENDS THAT EACH STOCKHOLDER VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITORS
OF THE FUND.
17
OTHER MATTERS
The Board knows of no matters other than those listed in the Notice of
Annual Meeting that are likely to come before the annual meeting. However, if
any other matter properly comes before the meeting, the individuals named as
proxies will vote in accordance with their best judgment on such matters.
In the event that sufficient votes in favor of the proposals set forth in
the Notice of the Annual Meeting are not received by the time scheduled for the
annual meeting, the individuals named as proxies may move for one or more
adjournments of the meeting to permit further solicitation of proxies. Any
adjournment will require the affirmative vote of a majority of the shares
present at the meeting.
ANNUAL REPORT
The financial statements of the Fund are contained in the 2001 Annual
Report to Stockholders, which has been provided to the stockholders concurrently
herewith. Such report and the financial statements contained therein are not to
be considered as a part of this soliciting material. A copy of the Fund's Annual
Report to Stockholders is available without charge upon request. Please direct
your request to Equus II Incorporated, Attention: Investor Relations, P.O. Box
130197, Houston, Texas 77219-0197, 713-529-0900.
STOCKHOLDER PROPOSALS FOR 2003 ANNUAL MEETING
Under the regulations of the SEC, an EQS stockholder may submit a proposal
on a proper subject for action at the 2003 annual meeting. All proposals must be
mailed to the Fund, c/o Equus Capital Management Corporation, 2929 Allen
Parkway, Suite 2500, Houston, Texas 77019, attention: Nolan Lehmann, and must be
received at that address no later that December 1, 2002, in order to be
considered for inclusion in the Fund's proxy statement and form of proxy for the
2003 annual meeting. Submission of a stockholder proposal does not guarantee
inclusion in the Fund's proxy statement or form of proxy because certain SEC
rules must be met.
Under our Bylaws, if you are a stockholder and wish to make a director
nomination at a stockholders' meeting, written notice your intent to make such
nomination must be given, either by personal delivery or by U.S. mail, postage
prepaid, to Tracy H. Cohen, Secretary, Equus II Incorporated, 2929 Allen
Parkway, Suite 2500, Houston, Texas 77019, not less than 60 nor more than 90
days prior to the meeting; provided, however, that in the event less than 70
days' notice or prior public disclosure of the date of the meeting is given to
stockholders, your notice to be timely must be received not later than the close
of business on the fifth day following the day on which such notice is mailed or
such public disclosure was made. Each such notice must set forth certain
information specified in the Fund's Bylaws.
The Bylaws also provide that no business may be brought before an annual
meeting unless it is properly brought before the meeting. To be properly brought
before the meeting a stockholder must deliver a written notice to the Fund at
the address set forth in the preceding paragraph of the stockholder's intention
to present a proposal (containing the information specified in the Bylaws)
within the time limits described above for delivering of notice of a nomination
of a director. These requirements apply to any matter that a stockholder wishes
to raise at an annual meeting other than pursuant to the procedures in SEC Rule
14a-8.
The proxy solicited by the Board of Directors for the 2003 Annual Meeting
will confer discretionary authority to vote on any shareholder proposal
presented at that meeting, unless the Fund is provided with notice of such
proposal no later than February 15, 2003.
A copy of the full text of the Bylaw provisions discussed above may be
obtained by writing to the Corporate Secretary, 2929 Allen Parkway, Suite 2500,
Houston, Texas 77019.
18
EQUUS II INCORPORATED
2929 Allen Parkway, Suite 2500, Houston, Texas 77019
This Proxy is solicited on behalf of the Board of Directors of Equus II
Incorporated (the "Fund") for the Annual Meeting of Stockholders on May 7, 2002.
The undersigned hereby constitutes and appoints Sam P. Douglass, or Nolan
Lehmann, with full power of substitution and revocation to each, the true and
lawful attorneys and proxies of the undersigned at the Annual Meeting of
Stockholders of Equus II Incorporated to be held on May 7, 2002, at 9:00 a.m.
local time, at Meeting Room No. 1, Ground Level, Wortham Tower, 2727 Allen
Parkway, Houston, Texas 77019, or any adjournment thereof (the "Annual Meeting")
and to vote the shares of Common Stock, $.001 par value per share, of the Fund
("Shares"), standing in the name of the undersigned on the books of the Fund on
March 22, 2002, the record date for the Annual Meeting, with all powers the
undersigned would possess if personally present at the Annual Meeting.
The undersigned hereby acknowledges previous receipt of the Notice of
Annual Meeting of Stockholders and the Proxy Statement and hereby revokes any
proxy or proxies heretofore given by the undersigned.
(CONTINUED, AND TO BE SIGNED, ON REVERSE SIDE)
[X] PLEASE MARK YOU VOTES AS IN THIS EXAMPLE
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS MADE, THE PROXY WILL BE VOTED FOR ELECTION OF DIRECTORS AND
FOR PROPOSAL 2.
1. Election of the eight nominees listed at the right to the Board of Directors:
FOR all nominees WITHOLD Nominees: Sam P. Douglass
listed at right (except as for all nominees Gregory J. Flanagan
marked to the contrary) Robert L. Knauss
Nolan Lehmann
_______________________ ____________________ Gary R. Petersen
John W. Storms
Dr. Francis D. Tuggle
Dr. Edward E. Williams
Instructions: To withhold authority to vote for any individual
nominee(s), write that nominees name on the line below:
_______________________________________________________________________________
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING PROPOSAL:
2. Ratification of the appointment of Arthur Andersen LLP as the independent
auditors for the Fund for the fiscal year ending December 31, 2002:
FOR ______________ AGAINST _______________ ABSTAIN _______________
The Board of Directors knows of no other matter to come before the meeting. If
any other matter is properly brought before the meeting with respect to which
the Fund was not provided notice on or before February 15, 2002, the proxies
will have discretion to vote this proxy on such matter in accordance with their
best judgment.
Signature ____________________________________
Signature (if held jointly)____________________________________
Date____________________________
Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee, or guardian, please give full title as such. If a corporation, please
sign in full corporate name by authorized officer. If a partnership, please sign
in partnership name by authorized person.